A guide to compensatory damages

February 13, 2023

Tort law in the United States seeks to put the plaintiff back in the position they were in before the tort occurred. There are several types of damages for litigators to consider in tort cases, but compensatory damages are the most common measure for providing relief to victims. While compensatory damages might be common, that doesn’t mean proving or disproving them is a simple task.

Bloomberg Law offers litigators the resources they need to effectively build their cases – from litigation tools and analytics to expert-drafted Practical Guidance. This article offers an overview of compensatory damages and illustrates how litigators can prepare a successful case.

What are compensatory damages?

Compensatory damages compensate a plaintiff for harm, injury, or other losses caused by the tortious conduct of another party. Also called “actual damages,” compensatory damages are the primary relief awarded in a successful tort action.

Common law and statutes determine the amount and types of compensatory damages permitted in a given jurisdiction. Litigators must check state statutes to see if there are limitations on the type and quantity of compensatory damages.

What is the difference between economic and noneconomic compensatory damages?

There are two types of compensatory damages: economic and noneconomic.

Economic compensatory damages

This type of compensatory damage repays monetary losses the plaintiff suffered directly caused by the tort. Economic damages, or “special damages,” include:

  • Loss of earnings
  • Property damage
  • Medical expenses
  • Funeral and burial expenses

These damages are considered as “objectively verifiable” by many courts since economic damages are reflected in quantifiable expenses incurred, like receipts, doctor’s bills (if the plaintiff is in physical pain), and other forms of documentation.

Noneconomic compensatory damages

These damages seek to cover intangible, nonmonetary losses that occurred as a result of the tortious conduct of another party. Noneconomic damages, or “general damages,” are subjective and are not quantifiable by receipts, bills, and other documentation. Noneconomic damages include:

  • Pain and suffering
  • Inconvenience
  • Emotional distress
  • Loss of consortium
  • Impairment of quality of life

Because noneconomic damages are subjective, they are sometimes capped by state statutes. These statutes aim to neutralize alleged jury bias against the defendant and emotional sympathy for the plaintiff. These caps vary from state to state, so it’s important for litigators to research a state’s statutory code – especially in professional negligence cases.

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What is the economic loss rule?

The economic loss rule generally prevents recovery in tort of damages for purely economic loss. It is important to note that “purely economic loss” and “economic damages” do not mean the same thing. By “purely economic,” courts typically mean that no injury to the plaintiff’s person or property occurred. The primary purpose of the economic loss rule is to prevent a party to a contract from seeking greater recovery in a tort action than would otherwise be available under the contract.

The economic loss rule has been adopted in most U.S. jurisdictions, but the structure is slightly different in each. As with most judge-made rules, courts vary in the exceptions they allow and the circumstances in which they enforce the economic loss rule. The outcome is highly dependent on the specific facts at issue, the nature of the parties’ relationship, disparities between the parties, and other factors.

​​Some frequent exceptions to the application of the economic loss rule include:

  • Contract for services: Economic loss rule is often applied to goods in many jurisdictions but not contracts for services.
  • The integrated product rules: In most states, if a defective product damages other property, the economic loss rule does not apply, unless the defective part or product is an integrated component in a larger system.
  • “Sudden and calamitous” failure: In some jurisdictions, if the product is damaged as a result of a sudden and calamitous event (like a truck battery exploding), the economic loss doctrine does not apply.
  • The independent duty rule: This is an exception to the economic loss rule, which allows a plaintiff to recover damages when the defendant owed the plaintiff a duty traceable to a source other than the parties’ contract.

[Litigators can prepare for negligence cases with a state-by-state comparison of rules on apportionment of fault.]

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How do litigators prove and attack compensatory damages?

Proving damages

Compensatory damages must be proven by a preponderance of the evidence – although courts may apply other burdens of proof such as reasonable certainty or substantial evidence, depending on the case. Proving compensatory damages typically requires presenting documentation such as receipts, testimony from the plaintiff or other witnesses about the impact of the tort on the plaintiff’s life, and, in some cases, expert testimony. Whether an expert is necessary depends on the facts and circumstances of the case, including the type of injury and the damages claimed.

Attacking damages

Defendants attack damages evidence in the same ways they attack other evidence in the plaintiff’s case. This can be done by filing motions in limine – pretrial motions requesting that certain evidence be found inadmissible and not referred to or offered at trial – to exclude evidence of damages or limit an expert’s testimony.

Defendants can also move to exclude or disqualify an expert (sometimes called a “Daubert motion”), cross-examine witnesses, as well as introduce contradictory evidence and expert testimony about the existence and/or amount of damage the plaintiff has suffered.

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How do litigators calculate compensatory damages?

When calculating the plaintiff’s damages – or attacking the other side’s calculation – it is important to consider damage principles, claim valuation methods, and jury instructions.

Damage principles

  • The collateral source rule: Benefits that an injured person receives from sources that have nothing to do with the tortfeasor may not be used to reduce the tortfeasor’s liability to the injured person.
  • Mitigation: This doctrine of avoidable consequences holds that an injured plaintiff has a duty to take reasonable steps to minimize its damages and will not be able to recover for any losses which could have easily been avoided.
  • Comparative negligence and contributory negligence: the affirmative defenses in negligence cases can greatly impact a plaintiff’s damages. States differ in apportionment of fault in tort cases.

Claim valuation methods

Adding up economic damages like medical bills and lost wages is relatively straightforward, but valuing intangibles like emotional distress is more complex. Two mathematical methods are typically used for noneconomic damages; the multiplier method and the per diem method.

  • The multiplier method: Start with the amount of the plaintiff’s economic damages and multiply them by a number between 1.5 and 5. The multiplier will depend on a variety of factors that a jury would consider in calculating pain and suffering.
  • The per diem method: Some courts permit a calculation based on how many days an injury caused pain and suffering with a standard amount charged for each day; oftentimes a person’s daily salary is a measure.

Jury instructions

Jury instructions may assist in calculating economic and noneconomic damages, or limit how counsel argue about the valuation. For noneconomic damages like “pain and suffering,” juries are sometimes told to assess damages that are “fair and reasonable” without much guidance. Litigators must come prepared to argue why the proposed changes are “fair and reasonable.”

[Litigators can prepare for negligence cases with a state-by-state comparison of rules on apportionment of fault.]