Compensatory Damages (Overview: What It Is And How It Works)

What is Compensatory Damages?

How do you legally define it?

What are the essential elements you should know!

Keep reading as we have gathered exactly the information that you need!

Let’s dig deeper into compensatory damages and legal financial recoveries!

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What Are Compensatory Damages

Compensatory damages represent a sum of money awarded to a plaintiff in a civil lawsuit compensating it for damages or injuries suffered caused by the defendant.

The objective of compensatory damages is to “compensate” the plaintiff for losses suffered.

For example, if a person was found to be grossly negligent while driving a car causing an accident resulting in injuries to the plaintiff, the court will award “compensatory” damages to the plaintiff to compensate it for the damages suffered like medical bills or other.

As the name suggests, compensatory damages are awarded to help the plaintiff recover something lost.

If the plaintiff did not lose anything or suffer any type of damages, the defendant will not have any obligation to compensate it even though there may have been negligence or an unlawful conduct.

Compensatory damages can be awarded in different types of civil lawsuits, such as:

• Negligence lawsuits
• Malpractice lawsuits
• Personal injury lawsuits 
• Tort law actions 

Let’s see how we define compensatory damages.

Compensatory Damages Definition

What is the definition of compensatory damages?

Compensatory damages are damages awarded by the court to the plaintiff in a civil action compensating it for any losses suffered caused by the defendant.

Compensatory damages include actual damages (or special damages) and general damages (or non-economic damages).

Actual damages are tangible and generally easy to prove by producing documents, bills, and statements.

General damages are harder to calculate as they are more subjective to the plaintiff and may not be apparent such as emotional distress, pain, and suffering.

Ultimately, a compensatory damage award is a financial compensation given to an injured party reimbursing the same for losses he or she may have sustained due to the defendant’s wrongdoing.

Types of Compensatory Damages

Compensatory damages can be divided in two categories:

• Actual damages
• General damages 

Type 1: Actual Damages 

Actual damages are typically financial losses incurred by the plaintiff that can be proven using a bank statement, invoice, receipt, disbursement records, checks, or other type of financial record.

For example, if a person is hurt due to another’s negligence, actual damages can be items lik:

• Ambulance expenses 
• Domestic services 
• Higher living expenses
• Hospital costs
• Lost employment income
• Lost wages
• Medical bills
• Medical equipment
• Nursing costs 
• Physical therapy
• Prescription drugs
• Property repair
• Property replacement
• Rehabilitation services 
• Transportation costs 

Type 2: General Damages

General damages are damages that are non-economic in nature intended to compensate the plaintiff for injuries suffered that did not involve the payment of a sum of money such as pain and suffering, mental anguish, or disfigurement. 

Typically, when general damages are awarded, they can cover damages caused by:

• Disfigurement
• Future lost wages
• Future medical expenses
• Inconvenience 
• Loss of consortium
• Loss of enjoyment of life
• Loss of opportunity 
• Mental anguish
• Physical impairment
• Physical pain and suffering 
• Undue stress 

How To Calculate Compensatory Damages

A person looking to successfully obtain compensatory damages must be able to prove in court that it suffered damages, a loss, or injury.

How To Calculate Actual Damages

To prove actual damages, the plaintiff will need to prove actual losses.

The evidence provided to prove actual damages are quite objective in nature and self-explanatory, they can include:

• Bank records
• Copy of checks 
• Copy of invoices 
• Copy of receipts 
• Disbursement records 
• Loan documents
• Sale of investments documents
• Sale of property documents 
• Visa statements 
• Wire transfers

Once all the actual damages are proven, you can easily calculate the total loss by adding all the costs and expenses suffered by the plaintiff.

How To Calculate General Damages

General damages are not as easy to calculate as actual damages.

In fact, general damages do not involve the disbursement of cash, money, or funds.

General compensatory damages are non-economic in nature and must be estimated by the courts.

There are various methods for calculating general damages depending on your jurisdiction.

Some courts quantify general compensatory damages using a “multiplier method” where they’ll take the actual damages and multiply it by a number based on the seriousness of the plaintiff’s injury and nature of the case.

Another method to calculate general damages is the “per diem” method where the courts calculate a dollar value of damages suffered for each day the plaintiff suffered.

Compensatory Damages vs Punitive Damages

What is the difference between compensatory damages and punitive damages?

Compensatory damages and punitive damages are fundamentally different and have very different objectives.

When a court awards a person damages to compensate it for a loss or injury, its objective is to put the plaintiff back to a condition right before the injuries were suffered.

The goal is to make the plaintiff whole again by compensating it for the losses it suffered.

For example, if a person lost $20,000 due to another’s negligent conduct or willful misconduct, the court will award the victim of the injury $20,000 so that it is fully compensated for the losses it suffered.

On the other hand, the objective of punitive damages is to punish the defendant or set an example so others will not adopt the same conduct or behavior.

For example, if a defendant’s conduct was so reckless or outrageously deviated from the expected standards, the courts may choose to impose a “punitive” damage on the defendant to punish it for such behavior.

If the victim had suffered $20,000 in damages, the court may award $20,000 in compensatory damages but also another $10,000 in punitive damages over and above what was required to fully compensate the plaintiff.

Compensatory Damages Example 

Let’s look at some examples of compensatory damages to better illustrate the concept.

Examples of Actual Damages

Examples of actual damages (or special compensatory damages as it’s referred to in some jurisdictions) are:

• Damaged property 
• Destroyed property
• Disability accommodations
• Domestic services
• Legal expenses
• Live-in care 
• Lost earnings
• Medical equipment
• Medical expenses
• Nursing home care
• Prescriptions 
• Rehabilitation costs
• Therapies 
• Transportation costs

These damages are money a person actually spends or is shown to be lost.

Examples of General Compensatory Damages

Examples of general damages (or non-economic damages) are:

• Anxiety 
• Depression
• Emotional distress
• Future medical bills
• Grief 
• Humiliation
• Inconvenience
• Loss of consortium
• Lost future income capacity 
• Lost of enjoyment of life
• Lost opportunities 
• Lost quality of life
• Mental anguish 
• Physical pain and suffering 
• Post-traumatic stress disorder

General damages are much less common than actual damages and are mostly awarded in personal injury lawsuits, medical malpractice lawsuits, or other types of civil lawsuits where the plaintiff suffered physical or psychological injuries.

Compensatory Damage: Takeaways 

So what is the legal definition of Compensatory Damages?

Let’s look at a summary of our findings.

What Is Compensatory Damages

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