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. Punitive Damages

    Punitive damages are legal recompense that is levied as punishment ...
  2. Civil Damages

    Civil damages are usually monetary awards due to a winning plaintiff ...
  3. Treble Damages

    A law that permits a court to triple the amount of damages awarded ...
  4. Combined Physical Damage Coverage

    Combined physical damage coverage is auto insurance designed ...
  5. Contractors' All Risks (CAR) Insurance

    Contractors' all risks (CAR) insurance covers contractors for ...
  6. Wrap-Around Insurance Program

    Provides punitive damages insurance for employment practices ...
Related Articles
  1. Taxes

    The Real Cost Of Natural Disasters

    Earthquakes, hurricanes, oil spills and other disasters have a very real cost, but who foots the bill?
  2. Managing Wealth

    The Most Expensive Home Insurance Perils

    Floods, hurricanes, mold, earthquakes - the threats to your home are numerous.
  3. Insurance

    How Much Will Hurricane Sandy Cost Insurance Companies?

    Hurricane Sandy's economic cost is staggering, but insurance companies will be paying out less than you might think.
  4. Small Business

    Have Hogan and Thiel Forced Gawker into a Sale?

    Gawker Media, which is worth $83 million, may be forced to sell after being hit with $130 million in damages for publishing a sex tape.
  5. Financial Advisor

    Do You Dare Sue Your Broker?

    A financial damages claim is not for the fainthearted, but it may be worth it in the end.
  6. 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.
  7. Insurance

    Do You Need Casualty Insurance?

    Find out how different types of coverages can protect you and which policy is right for you.
  8. 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.
  9. Insights

    The Financial Effects of a Natural Disaster

    We're all subject to Mother Nature's whims. Learn how the damage caused by natural disasters can have far-reaching effects and how to prepare yourself.
RELATED FAQS
  1. Does homeowners insurance cover tree damage?

    Discover how damage to a home from fallen trees is covered under your homeowners insurance policy if it happens suddenly ... Read Answer >>
  2. Suppose my garage collapsed onto my car. Are damages covered by my home insurance ...

    Generally, damage to an automobile will be covered by comprehensive car insurance, which is in addition to collision coverage ... Read Answer >>
  3. What are some ways a business owner can reduce unlimited liability?

    Understand how a fixed asset becomes impaired. Learn the accounting practices of impairing a fixed asset, and how it's recognized ... Read Answer >>
Hot Definitions
  1. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  2. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  3. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  4. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  5. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  6. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
Trading Center