Compensatory Damages

Compensatory damages are money awarded to an injured person to compensate them for actual losses or injuries caused by another party’s negligence or wrongful act. Their purpose is to compensate the injured person for the losses they have suffered not to punish the wrongdoer. This principle is commonly referred to as making the injured person whole; that is, providing financial compensation to place them as closely as possible in the position they would have been in if the loss had not occurred.

Compensatory damages are generally divided into two categories:

Special (Economic) Damages: Financial losses that can be calculated, such as medical expenses, lost wages, property damage, and future medical care.
General (Non-Economic) Damages: Losses that are more difficult to measure, such as pain and suffering, emotional distress, loss of enjoyment of life, and loss of consortium.

Liability insurance policies typically cover compensatory damages, subject to the policy’s terms, conditions, exclusions, and limits. They are different from punitive (exemplary) damages, which are awarded to punish the wrongdoer and deter similar conduct. Coverage for punitive damages varies by policy and jurisdiction.