Compensatory Damages – Tort

Cite this article as: Jason Mance Gordon, "Compensatory Damages – Tort," in The Business Professor, updated January 9, 2015, last accessed April 4, 2020, https://thebusinessprofessor.com/knowledge-base/compensatory-damages/.
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Compensatory Damages - Tort
This video explains what are compensatory damages in tort actions.

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What are “Compensatory Damages”?

Tort plaintiffs may generally recover compensatory damages for injuries or losses suffered as a result of the tortious conduct. As the name implies, these damages are used to compensate the plaintiff for an injury suffered and to make the plaintiff whole again. Compensatory damages may include financial loss, pain and suffering, decreased life expectancy, loss of enjoyment, and loss of life or limb. Calculation of damage awards are made by the jury.

  • Note: Juries may employ life expectancy tables and present value discounts in arriving at a damages award.

Discussion: Do you have any opinions on how compensatory damages should be calculated? Should any factors other than the harm suffered by the plaintiff be considered? Do you think the award of compensatory damages is always fair? Why or why not? Should there be cap on damages? Why or why not?

Practice Question: Arthur gets into an automobile accident. He suffers some bruising and a broken ankle. He also has to take leave from work for several months until his ankle fully heals. The doctors are concerned that Arthur could suffer long-term pain and arthritis in the ankle. He sues the other driver for negligence and wins. What do you think the jury will consider in awarding compensatory damages to Arthur?

Proposed Answer

  • Compensatory damages are the sum of money to which a party may be awarded in a trial as compensation for damages or injuries suffered. The compensatory damages are meant to restore the plaintiff to the level they were before the harm was inflicted. To receive compensatory damages, the plaintiff must also be able to quantify the amount of loss in the eyes of the jury or judge. When calculating compensatory damages in a personal injury, the following factors are often considered by the jury:
    • The accident victim’s age.
    • The nature and extent of the victim’s injuries.
    • Whether or not the victim contributed to the cause of the accident.
    • The cost associated with the medical treatment of the victim’s injuries.
    • Any difference in the victim’s earning capacity before and after the injury.
    • Loss of income as a result of the injury.

    Any negative impacts that the injury may have on the victim’s quality of life. https://www.legalmatch.com/law-library/article/compensatory-damages-in-a-personal-injury-claim.html

Academic Research

Burrows, Andrew Stephen, Comparing Compensatory Damages in Tort and Contract: Some Problematic Issues (2011). From Simone Degeling, James Edelman and James Goudkamp (eds), Torts in Commercial Law (Law Book Co 2011) 367-390; Oxford Legal Studies Research Paper. Available at SSRN: https://ssrn.com/abstract=2280293 or http://dx.doi.org/10.2139/ssrn.2280293. This essay considers a number of difficult issues in comparing compensatory damages in tort and contract in the context of concurrent liability. Four questions are focused on. Looking across all four questions, it is argued that, while the measure of damages should reflect the underlying wrong in question – so that the reliance interest should not be protected for breach of contract as opposed to tortious misrepresentation – there is usually no rational reason for applying different restrictions on compensatory damages in contract and tort in cases of concurrent liability. So it is that there should be an assimilated approach to remoteness and to the recovery of mental distress in the context of concurrent liability with, in both situations, the contractual rules applying to the concurrent claim in the tort of negligence. And as regards loss of a chance, the most rational assimilation depends on recognising that the differences should rest not on whether the cause of action is tort or contract but rather on whether the type of loss in question is economic or a personal injury.

Lens, Jill Wieber, Honest Confusion: The Purpose of Compensatory Damages in Tort and Fraudulent Misrepresentation (March 23, 2010). Kansas Law Review, Vol. 59, p. 231, 2011. Available at SSRN: https://ssrn.com/abstract=1577235. Tort law achieves its main purpose of compensating injured plaintiffs by awarding compensatory damages, which put the plaintiff in the same place as if the tort had not occurred. The amount of compensatory damages is necessarily connected to the plaintiff’s injury. For a long time, however, courts have broken that connection in fraudulent misrepresentation claims. The majority of courts hear “fraud” and award benefit-of-the-bargain damages, claiming that the plaintiff is not whole unless she receives compensation for the lost expectation allegedly created by the misrepresentation. Sometimes though, these same courts deny the plaintiff this compensation if the defendant’s conduct was not reprehensible or, more commonly, was merely negligent. In this article, I argue that courts cannot continue to award benefit-of-the-bargain based compensatory damages for fraudulent misrepresentation. Tort law cannot tolerate the possibility that the amount of compensatory damages depends on the defendant’s conduct; otherwise, tort law may not fully compensate injured plaintiffs. Courts can continue to award benefit-of-the-bargain damages for fraudulent misrepresentation, but only as punitive damages, which is especially appropriate because the purpose of the damages has always been to punish.

Oswald, Andrew J. and Powdthavee, Nattavudh, Death, Happiness, and the Calculation of Compensatory Damages (November 2007). IZA Discussion Paper No. 3159. Available at SSRN: https://ssrn.com/abstract=1033387. This paper studies the mental distress caused by bereavement. The largest emotional losses are from the death of a spouse; the second-worst in severity are the losses from the death of a child; the third-worst is the death of a parent. The paper explores how happiness regression equations might be used in tort cases to calculate compensatory damages for emotional harm and pain-and-suffering. We examine alternative well-being variables, discuss adaptation, consider the possibility that bereavement affects someone’s marginal utility of income, and suggest a procedure for correcting for the endogeneity of income. Although the paper’s contribution is methodological, and further research is needed, some illustrative compensation amounts are discussed.

Allen, Ronald Jay and Marks, Alexia Brunet, The Judicial Treatment of Non-Economic Compensatory Damages in the Nineteenth Century. Journal of Empirical Legal Studies, Vol. 4, No. 2, pp. 365-399, July 2007; 1st Annual Conference on Empirical Legal Studies Paper. Available at SSRN: https://ssrn.com/abstract=913430 or http://dx.doi.org/10.2139/ssrn.913430. Do high verdicts for tort cases containing noneconomic damages have historical precedent? We present the results of our empirical inquiry into the treatment of noneconomic compensatory damages by the courts from 1800-1900. Using 1,175 tort cases from this era, we show that, notwithstanding constant reiteration of jury discretion over damages, courts tightly controlled awards. In fact, no case prior to 1900 permitted a noneconomic compensatory damages award exceeding $450,000 in current dollars. Logistic regression results reveal that an increase in total monetary damages is positively and significantly related to the probability of reversal when noneconomic damages were claimed, and that comparability review decreases the probability of reversal.

Rendleman, Doug, Measurement of Restitution: Coordinating Restitution with Compensatory Damages and Punitive Damages (June 29, 2011). Washington and Lee Law Review, Vol. 68, 2011; Washington & Lee Legal Studies Paper No. 2011-12. Available at SSRN: https://ssrn.com/abstract=1874894. Courts apply compensatory damages, restitution, and punitive damages to formulate litigants’ civil remedies. The frequently contested policy justifications for these three remedies are often hazy and uncertain. The transitions between the three remedies are disputed. Lawyers and courts often misunderstand restitution with deleterious consequences for litigants and the administration of justice. The American Law Institute’s completion of the Restatement (Third) of Restitution and Unjust Enrichment provides the legal profession with opportunities to dispel this haze and to clarify the distinctions. In addition to obviating defendants’ unjust enrichment, restitution with its measurement choices provides a midpoint on a continuum of the three remedies. Restitution’s policy justifications often overlap with compensatory damages at one end of the continuum and with punitive damages at the other. This modest effort identifies wiser choices to aid lawyers’ and courts’ remedial decisions and seeks to improve the courts’ administration of litigants’ civil remedies. Focusing on the Restatement’s measurement choices for restitution, it explains familiar examples to analyze the choices between compensatory damages, restitution, and punitive damages and to locate the transitions between them.

Kahn, Douglas A., Compensatory and Punitive Damages for a Personal Injury: To Tax or Not to Tax?. Florida Tax Review, Vol. 2, p. 327, 1995. Available at SSRN: https://ssrn.com/abstract=983568. Since the adoption in 1919 of the Revenue Act of 1918, damages received on account of personal injuries or sickness have been excluded by statute from gross income. This exclusion, which does not apply to reimbursements for medical expenses for which the taxpayer was previously allowed a tax deduction, is presently set forth in section 104(a)(2). One might expect that a provision having recently attained the ripe age of 75 years without change in its basic language would have a settled meaning. However, recent litigation under section 104(a)(2) bristles with unsettled issues. Does the exclusion apply to punitive damages? To prejudgment interest included in a personal injury recovery? To recoveries under various antidiscrimination statutes? The Supreme Court entered the fray in 1992 with its decision in United States v. Burke, dealing with the application of section 104(a)(2) to recoveries in employment discrimination cases. The Court followed a regulation stating that the exclusion applies only to amounts received, through suit or settlement, based upon tort or tort-type rights, and held that a claim is tort or tort-type only if it can be redressed by a broad range of damages, such as those traditionally allowed in tort cases. Specifically, the Court found that a recovery under Title VII of the Civil Rights Act of 1984 was not within the section 104(a)(2) exclusion because Title VII, as it existed when the facts of the case arose, allowed only equitable relief and recoveries of backpay. If the Court believed that the Burke decision would bring order to this corner of the law, it was sadly mistaken. Many questions remain. A principal purpose of this article is to suggest that these questions should be resolved with a close eye on the history of section 104(a)(2) and the policies supporting it.

Kornhauser, Lewis A. and Takeda, Keith T., The Effects of Judicially Imposed Restriction of Settlements to Compensatory Damages (March 23, 2011). NYU Law and Economics Research Paper No. 11-10. Available at SSRN: https://ssrn.com/abstract=1793189 or http://dx.doi.org/10.2139/ssrn.1793189. Courts have traditionally limited judicially approved settlements to compensatory or single damages even in class actions based in Federal civil antitrust law where trebling of damages is mandatory upon a finding of liability. This paper analyzes the effects of such settlement caps for both single and multiple defendants and shows such caps: (1) reduce settlement and (2) introduce additional conflicts of interest between plaintiff and defendant or defendants. The multi-defendant analysis is done both for defendants whose outcomes are perfectly correlated and independent. In a second part, the paper provides an empirical analysis of the Auction Houses case showing the effects of the limitation in actual practice and demonstrate how the model might be used by decision makers to assess the fairness of actual settlements

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