Compensatory vs. Punitive Damages: The Legal Difference

Damages are the amount of money that a civil court awards you when you win a claim involving negligence. There are two types of damages, compensatory and punitive. Understanding the definition and purpose of compensatory vs. punitive damages can help you build a strong case and get the best possible settlement.

What are compensatory damages?

Compensatory damages, also called actual damages, are damages awarded by the court to reimburse you for actual economic and noneconomic losses you suffer due to another person. They’re typically awarded in breach of contract, property damage, personal injury, and medical malpractice cases.

Medical expenses like hospital and physical therapy bills are a common example of compensatory damages in personal injury cases, like car accidents. If someone damages your reputation, known as defamation, you might have compensatory damages awarded for emotional distress.

Types of compensatory damages

Compensatory damages essentially return what was taken from you. They’re divided into two types:

• Special damages, also known as economic damages, cover monetary losses that can be calculated by looking at various documentation, like medical bills, lost wages, and property damage.
• General damages, also known as noneconomic damages, cover losses which don’t have a specific monetary value. The most common are pain and suffering, emotional distress, loss of enjoyment of life, and loss of consortium.

What are punitive damages?

Punitive damages are meant to punish the defendant and discourage them from doing the same thing in the future. These damages are typically awarded in cases involving “egregious conduct,” which means behavior that’s especially bad.

Criteria for awarding punitive damages

Courts will consider the following criteria to determine whether to award punitive damages:

• Intentional misconduct means the defendant knew their actions would cause harm, and they did it anyway. For example, if a pharmaceutical company knowingly markets a drug with dangerous side effects, they’ll likely have to pay punitive damages.
• Gross negligence is a severe lack of care or reckless disregard for the safety and well-being of others. An example is a construction company ignoring safety protocols, resulting in a collapse that injures workers.
• Fraudulent behavior involves knowingly making a false statement that someone else relies upon as true. Some common examples are businesses creating false financial statements to attract investors, or a person lying about the condition of property (like a car or a house) to get a higher price.

Key differences between compensatory and punitive damages

The easiest way to understand the differences between compensatory damages and punitive damages is to compare their purposes, as well as how the courts award them.

Purpose

The purpose of compensatory damages is to “restore” you to the same condition you were in before the defendant’s actions. This means reimbursing you for actual monetary losses, as well as attempting to make things right for any emotional or long-term impacts you suffered.

Punitive damages, on the other hand, go above and beyond simple compensation. They’re meant to punish the defendant for extreme behavior and deter future misconduct.

Calculation

One of the best ways to understand compensatory vs. punitive damages is to look at how they’re calculated. Compensatory damages are calculated based on actual losses and costs, like medical bills, lost wages, and future harm caused by long-term damage.

Unlike compensatory damages, punitive damages aren’t based on the actual harm to the plaintiff. Instead, the court will consider the potential for future harm to the general public, as well as the defendant’s intent and the severity of their actions.

Legal standards

Compensatory damages are awarded based on the “preponderance of evidence,” which means it’s more likely than not that the defendant's misconduct caused the plaintiff's losses. Punitive damages require a higher standard of proof, known as “clear and convincing evidence.” This means that the evidence clearly shows that the defendant’s misconduct harmed the plaintiff.

How damages are calculated

Calculating the amount owed is quite different for compensatory vs. punitive damages. A good attorney can help you determine the value of your claim.

Calculating compensatory damages

Compensatory damages have two parts. Special damages, or economic damages, are quantifiable. They’re calculated using clear, objective data such as medical records, bills, and receipts, for example:

• Medical expenses: Total of all medical bills related to the injury, including hospital stays, surgeries, medication, and rehabilitation
• Lost wages: The plaintiff's salary or hourly wage multiplied by the time missed from work due to the injury
• Property damage: The cost to repair or replace damaged property, based on repair estimates or invoices

Non-economic damages are more difficult to measure, but can be calculated using expert testimony and other methods, for example:

• Pain and suffering. Courts may use the "multiplier method" (multiplying actual damages by a factor, often between 1.5 and 5) or the "per diem method" (assigning a daily value to the pain and suffering and multiplying by the number of days the plaintiff is affected).
• Emotional distress. This is evaluated through psychological assessments and expert testimonies, considering the impact on the plaintiff's mental health and daily life.
• Loss of enjoyment of life. Courts hear personal and expert testimony to determine how the injury affects overall quality of life. This is common in personal injury cases.
• Loss of consortium. This compensates family members for a loss of companionship and support. Calculating it also involves personal and expert testimony, and it’s common in wrongful death cases.

Calculating punitive damages

Punitive damages are intended to punish the defendant and prevent future misbehavior. The calculation considers several factors:

• Level of intent. The worse the defendant's actions, whether due to gross negligence, malicious intent, or fraud, the more severe the punishment will be.
• Financial status. Accounting for the defendant's financial situation ensures the punishment will be effective. A global billion-dollar company will likely have to pay more than a small, local business.
• Precedent. Courts might look at previous, similar cases to help determine how much to award.
• Statutory caps. Some jurisdictions have statutory caps limiting the amount of punitive damages that can be awarded. These caps vary by state and case type.

Proportionate responsibility rules

In states that use proportionate responsibility rules, the court will assign a percentage of fault to each party involved in the case. The plaintiff's compensation can be reduced by their share of responsibility for the incident. For example, if you’re bringing a personal injury claim, but you’re found to be 20% at fault for the accident, your compensatory damages would be reduced by 20%. An attorney can help you understand the laws in your state and build a strong case.

How to assess which type of damages you could receive

To truly assess compensatory damages vs. punitive damages, you’ll want to talk to a qualified attorney who understands state laws, caps on damages, and relevant legal precedents. They can help you:

• Understand the nature of your losses. You’ll want to fully understand all losses that are directly related to the incident. Talk to experts who can help you assess both actual damages and non-economic impacts like pain and suffering and emotional distress.
• Gather evidence. Collect documentation like medical records, receipts, bills, and proof of lost income, and record expert testimonies. For punitive damages, you’ll want company documents, eyewitness testimonies, or prior reports that show malicious intent or grossly negligent behavior.
• Research similar cases. Look for cases similar to yours to see what types of damages were awarded. This can provide a benchmark for what you might expect. Your attorney can recommend resources and provide guidance based on their experience.

 If you’re thinking about bringing a personal injury lawsuit, one of our experienced injury attorneys will be happy to discuss compensatory vs. punitive damages and answer any other questions you might have. Sign up for personal injury advice and get dedicated attorney support for all types of claims.

FAQs

Do I need a personal injury attorney?

Yes, a personal injury attorney can provide expert guidance, handle complex legal processes, and improve your chances of receiving fair compensation. Their experience is crucial in navigating the nuances of your case and state-specific laws.

How long does it take to receive compensatory vs. punitive damages?

The time to receive compensatory damages varies based on case complexity, court schedules, and whether a settlement is reached or the case goes to trial. It can range from several months to a few years. Punitive damages can take longer because of the complexity of the cases and the appeals process.

Can you receive both compensatory and punitive damages?

Yes, you can receive both compensatory and punitive damages. Compensatory damages cover actual losses, while punitive damages punish the defendant for egregious conduct.