What is 'Compensatory Damages'

Compensatory damages is money awarded to a plaintiff to compensate for damages, injury, or another incurred loss. Compensatory damages are awarded in civil court cases where loss has occurred as a result of the negligence or unlawful conduct of another party. To receive compensatory damages, the plaintiff has to prove that a loss occurred, and that it was attributable to the defendant. The plaintiff must also be able to quantify the amount of loss in the eyes of the jury or judge.

BREAKING DOWN 'Compensatory Damages'

Compensatory damages differ from punitive damages, which may compensate over and above any loss or damage incurred and are meant to provide an incentive against repeating the act that caused the plaintiff's loss or damages. Cases related to compensatory and punitive damages are a major source of debate in the field of health insurance, as proponents of tort reform claim that excessive damages above the actual loss incurred increase the overall cost of healthcare. Compensatory damages are intended to compensate the plaintiff of a lawsuit with enough money to cover the loss caused by the defendant. Compensatory damages can be classified as two types: actual and general.

Actual damages are intended to provide the monetary amount necessary to replace what was lost and nothing more. 

Actual compensatory damages include:

  • Medical and hospital bills
  • Medical treatments
  • Rehabilitation expenses
  • Physical therapy
  • Ambulance expenses
  • Medicine and Prescription drugs
  • Nursing home care
  • Domestic services
  • Medical equipment
  • Lost wages or lost employment income
  • Increased living expenses
  • Property replacement or repair
  • Transportation

To be awarded actual compensatory damages, the plaintiff must prove that losses suffered equate to a defined monetary value. 

General compensatory damages, meanwhile, include estimates of loss not involving actual monetary expenditure. Some courts use the "multiplier method," which calculates general damages by multiplying the sum total of one's actual damages by a number that signifies the seriousness of injury. In other jurisdictions, courts will use the "per diem" method, which attaches a dollar value to each day a plaintiff suffers and adds the value of all those days together. In some cases, a court will use a hybrid of these two methods to calculate general compensatory damages.

General compensatory damages include:

  • Mental anguish
  • Disfigurement
  • Future medical expenses
  • Future lost wages
  • Long-term physical pain and suffering
  • Loss of consortium
  • Inconvenience
  • Loss of enjoyment of life
  • Loss of opportunity

Compensatory damages are typically awarded in medical malpractice lawsuits, usually for medical bills, hospital bills, rehabilitation expenses and compensation for lost earnings. Some compensatory damages can be difficult to assess. For example, the value of lost wages will be much higher for a more affluent member of society versus someone who is poor or retired.

RELATED TERMS
  1. Civil Damages

    Civil damages are monetary awards granted when a person suffers ...
  2. Water Damage Insurance

    Water Damage Insurance provided in most homeowners insurance ...
  3. Covenant Not To Execute

    A covenant not to execute is a lawsuit agreement in which the ...
  4. Continuous Injury Trigger

    An insurance policy coverage theory in which any policy that ...
  5. Water Damage Clause

    A water damage clause in a property-casualty insurance contract ...
  6. Business Recovery Risk

    Business recovery risk refers to a company's exposure to loss ...
Related Articles
  1. Insurance

    The Importance Of Property Insurance

    Property insurance is important, but there's a lot you need to learn in order to get the proper coverage.
  2. Managing Wealth

    How to Financially Prepare for a Hurricane

    Insurance isn't enough: How to ensure that you're ready financially for a natural disaster.
  3. Insurance

    4 Tips for Negotiating an Insurance Settlement

    It is possible to negotiate your own insurance settlement, especially when the injuries are relatively minor and the other party’s fault is obvious.
  4. Insurance

    5 Myths About Homeowner's Insurance

    Many homeowners believe their policies will cover them for any and all damages, but the reality can be an expensive surprise.
  5. Investing

    DuPont, Chemours Stock Rally After Court Ruling (DD, CC)

    Share of both companies rose after federal jury awarded an Ohio man $500,000 in punitive damages in a chemical illness lawsuit filed against DuPont.
  6. Personal Finance

    JNJ to Pay $55 Million in Ovarian Cancer Suit (JNJ)

    Health care giant Johnson & Johnson was ordered to pay $55 million in damages to a woman who claimed that the company's talcum powder was responsible for her ovarian cancer.
  7. Managing Wealth

    17 Types of Income the IRS Can’t Touch

    Uncle Sam can't get his hands on your money if it's in one of several specific income categories.
  8. Insurance

    Millennials Guide: Picking the Right Car Insurance

    Millennials fall into the category of high car-insurance rates. Check out some of the ways to save money, like owning an older car or leasing a vehicle.
  9. Small Business

    Business Insurance Lessons From a Texas-Sized Flood

    If you own a small business, make sure it is insured against losses due to flooding or hurricanes.
RELATED FAQS
  1. Why do insurance policies have deductibles?

    Learn the basic concept of an insurance deductible and why they mitigate moral hazards and provide financial viability to ... Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center