Compensatory Damages Explained with Examples

Compensatory damages are also known as actual damages, as the plaintiff only gets what he has lost; nothing more than that.

In law, the term 'damages' refers to the money to be paid to a person as compensation for loss or injury. Damages are categorized into two types, (i) compensatory damages, wherein the plaintiff receives compensation for the loss incurred, and (ii) punitive damages, wherein the court seeks to punish the wrongdoer (defendant) for his negligence.

Going by the simplest definition, it is the amount of money awarded to the plaintiff as the amount 'necessary' to cover the loss that he has incurred because of another person's breach of duty.

In other words, it's a compensation intended to make the victim 'complete' in monetary terms, or revert him back to the financial position at which he was before the incident. Let's have a look at an example to make things clear.

If Mr. X gets injured in an accident for which Mr. Y is responsible and thus, has to go on a long leave, then Mr. Y is liable to pay him the amount of money that he will lose as a result of not being able to work in the form of compensatory damages.

Compensatory damages cover medical expenses, loss of income, loss of property, pain and suffering, mental anguish, and loss of consortium. In these lawsuits, the onus is on the plaintiff to prove that he has suffered a loss and compensable by some amount of money. Based on this, the judge will decide whether he should be awarded compensatory damages or not.

Compensatory damages are further categorized into two types: (i) special damages and (ii) general damages. Special damages include repair and/or replacement of the damaged property, medical expenses, wages lost as a result of loss of working days, loss of the capacity to work, etc.

On the other hand, general damages include pain, suffering, mental anguish, and loss of consortium. The plaintiff can seek both, special damages and general damages.

In the given example, for instance, special damages will include the damages that cover Mr. X's medical expenses, damage caused to the car, loss of earnings resulting from his inability to go to work for a specific period (or inability to work in the future), etc.

In contrast, if Mr. X claims compensation for physical pain and mental anguish that he has had to suffer as a result of this accident, these will be considered general damages.

In the case of a breach of contract, special damages cover a broad range of losses, including loss of profits and damage to business reputation, while general damages cover contractual losses, such as the difference between market prices and contract prices.

That might seem a little confusing, but going through the following examples of compensatory damages for breach of contract will help you get rid of your doubts.

If Mr. X buys a house from Mr. Y, only to realize that the house has plumbing problems which Mr. Y had not mentioned during the deal, then Mr. X can claim compensatory damages. In this case, if the problems bring down the market price of the house, then Mr. Y will be liable to pay Mr. X the difference between the contract price and market price as damages.

A painter hires a moving company to deliver his paintings at the art gallery, where he intends to exhibit them. The people at the moving company fail to make the delivery in time, as a result of which the painter misses the opportunity of selling some of his paintings.

In this case, the defendant (i.e., the moving company) can be held liable for the loss of profits that the plaintiff (i.e., the painter) would have made, had the paintings reached the gallery in time.

As you must have noticed, it is easier to calculate special damages, as they are calculated in terms of monetary value. In contrast, general damages are intangible losses which are calculated on the basis of special damages. As general damages don't have a set value, the decision is left to the judge.