A harmed party receives either punitive or compensatory damages as monetary compensation. Here’s what to know about compensatory damages.
Compensatory damages are payments to an injured party to remedy sustained losses. Awarded damages aim to restore the plaintiff financially, physically, and emotionally.
What Constitutes as Compensatory Damage?
Compensatory damages are special damages (monetary losses) and general damages (non-monetary losses).
Special damages, also known as actual compensatory damages, have a specific dollar amount attributed to the damage. Monetary losses include:
- Medical expenses (current and future)
- Repair or replacement of property
- Funeral expenses
- Rehabilitation and physical therapy expenses
- Ambulance services
- Nursing home care
- Domestic services
- Loss of earnings, current, and future
- Increased living expenses
General compensatory damages can be more subjective and difficult to quantify as damages are intangible and focus more on emotional and mental health. Non-monetary losses may include:
- Pain and suffering (permanent physical distress)
- Disfigurement (permanent change in appearance)
- Loss of consortium (inability to continue familial and spousal relationships)
- Loss of physical or mental capacity (inability to care for the self)
- Emotional distress (loss of enjoyment of life and opportunity)
Unless an employer consciously disregards the safety of others or is found guilty of oppressing, fraud, or malice, the employee cannot hold the employer liable for damages.
Compensatory Damage in Personal Injury Cases
Compensatory damages can include physical, mental, and financial costs. In personal injury cases, the injured party receives recompense for what they lost.
For personal injury cases, the injured, or the plaintiff, is paid by the defendant (a person or a company) responsible for the accident. The court awards damages after a settlement between both parties, the respective insurance companies, and the respective attorneys. If a personal injury lawsuit goes to trial, a judge or jury determines the damages.
For personal injuries, contributory or comparative negligence may complicate a plaintiff’s damages. Compensatory damage awards are adjusted depending on who is most at fault.
In contributory negligence, the defendant may pursue legal action if the plaintiff’s actions led to the injury. On the other hand, comparative negligence laws differ by state and determine each party’s responsibilities in the accident.
Types of Claims that Might Receive Compensatory Damages
Most commonly, compensatory damages can include:
- Car accident claims
- Slip and fall cases
- Medical malpractice and other malpractice
- Assault, battery, and other torts
- Dog bite cases and animal attacks
- Injuries caused by defective products
Determining a dollar amount for the consequences of an injury may not be straightforward. While property damage and medical bills are considered easily quantifiable, intangible effects on an individual, such as physical and emotional suffering, can be more nuanced and complicated.
Calculating Compensatory Damage Awards
The injured party (plaintiff) must prove a loss occurred and provide substantial evidence the defendant is responsible. Calculating compensatory damages may include the following factors:
- The background of the plaintiff
- The type and extent of the injury
- The cost of treating or rehabilitating the plaintiff
- The differences or losses in the plaintiff’s ability to earn a wage before/after the incident
- Income loss
- Property reported
- The impact of the injury on the plaintiff’s quality of life
If the plaintiff is successful, compensation will cover the money and debt lost during the incident. Keep a hard copy of bills and invoices directly related to the injury. The plaintiff’s attorney submits their records to the judge to determine the documents’ relevance and calculate the total damages.
Unfortunately, the judge may reduce a damage award if a plaintiff is:
- Partially responsible for the accident (comparative negligence)
- Fails to mitigate damages
The plaintiff may suffer from emotional distress, and evidence is difficult to gather, but seeking compensation for emotional injuries is worth pursuing.
Receiving Compensatory Damage Awards
Plaintiffs have the burden of proof and are responsible for:
Providing substantial evidence against the defendant
Determining the number of damages
Both parties – the plaintiff and the defendant – work with their attorneys to agree on the monetary compensation. Settling on the award amount outside of court is advantageous to keep legal costs down.
Should the two parties fail to settle, the case goes to trial, presenting the facts to a jury. To save time, a plaintiff may choose to pursue a pre-settlement loan, which provides the plaintiff with financial relief. If the parties disagree, a jury will calculate the plaintiff’s compensation until the trial is complete.
If the defendant cannot or is unwilling to pay the damages, the plaintiff may place a lien on their property, a financial claim that affects the ownership of the property.
FAQs About Compensatory Damages
Do you need a lawyer to collect compensatory damages?
While attorneys are not required, collecting compensatory damages is a complicated legal process that differs by state. Attorneys may advise and guide clients.
Are compensatory damages taxable?
Yes, compensatory damages are taxable, with exceptions. Unless excluded by the Internal Revenue Code (IRC), the plaintiff may pay income taxes on their earnings and report the amount on IRS Form-1099, Miscellaneous Income.
Under IRC Section 104(a) (2), a taxpayer does not have to pay taxes for physical injuries or illnesses. However, a taxpayer must pay income taxes on an award from emotional distress.
What is the difference between general and special damages?
Special damages only replace monetary losses. General damages are complicated by intangible impacts of the loss, such as suffering and trauma.
What is a structured settlement?
If the damage award is large enough, a structured settlement allows the plaintiff to receive their damage award on a monthly or annual basis over a certain period of time. A structured settlement can come with benefits such as:
- Reduced income taxes
- Greater likelihood of recovery from the defendant
Consult with an attorney and a financial planning professional when considering a structured settlement.