Key Takeaways

  • Actual damages (also called compensatory damages) are intended to restore a plaintiff to the position they were in before harm occurred.
  • Punitive damages are awarded to punish the defendant for egregious conduct and deter future wrongdoing.
  • Actual damages can include economic losses like medical bills and lost wages, as well as non-economic harms such as emotional distress.
  • Courts consider several factors when awarding punitive damages, including the ratio to actual damages and the defendant’s intent.
  • Additional types of damages include nominal, liquidated, and consequential damages.

Actual damages vs. punitive damages are the two main types of damages awarded in civil court cases. While courts grant actual damages to plaintiffs to compensate them for a loss they have suffered, they impose punitive damages on a defendant to discourage the behavior that led to the defendant being sued in the first place.

The plaintiff receives compensation from both actual damages and punitive damages, but there are certain differences in how a court awards them.

Actual Damages

Actual damages, which are also sometimes called compensatory damages, are designed to return the plaintiff to the position they were in before they experienced an injury or loss. The plaintiffs, therefore, have a responsibility to prove to the court that they suffered a loss, such as from a robbery, car accident, or breach of contract.

Courts may award you compensation for:

  • Present and future medical bills
  • Lost income or earning ability
  • Pain and suffering or emotional distress
  • Property damage
  • Damage to the relationship with your children, spouse, or both

Some insurance companies may refer to actual damages as special damages. In addition, the term special damages can mean the amount of money lost by the plaintiff due to the injury caused by the defendant.

Types of Actual Damages

Actual damages can be categorized into two primary types:

  • Economic (or Special) Damages: These represent tangible, quantifiable losses. Examples include medical expenses, lost wages, repair costs, and other out-of-pocket expenses directly resulting from the defendant’s conduct.
  • Non-Economic (or General) Damages: These refer to intangible harms that are harder to quantify. They may include pain and suffering, mental anguish, emotional distress, and loss of enjoyment of life.

The plaintiff must present credible evidence—such as medical records, invoices, or expert testimony—to substantiate their claim for actual damages. This is especially important when dealing with subjective or non-economic losses.

How Actual Damages Are Calculated

To calculate actual damages, courts examine the direct impact of the harm on the plaintiff. This often involves:

  • Reviewing documented expenses (medical bills, invoices, receipts)
  • Estimating lost future earnings using expert testimony
  • Valuing damaged or destroyed property based on market value
  • Assessing pain and suffering using factors such as injury severity, recovery time, and psychological impact

The goal is to make the injured party whole, not to punish the defendant.

Punitive Damages

A decision by a judge to grant punitive damages in a civil case is often a contentious issue. This may be in part because punitive damages have to be paid by the defendant on top of any actual damages that the court awards to the plaintiff. An alternative name for them is exemplary damages.

If the court deems that the defendant has behaved recklessly or negligently, it can impose punitive damages as a punishment. The court makes a decision on how much punitive damages the defendant needs to pay. Unlike actual damages, the court does not calculate the amount to be paid using bills and other losses experienced by the plaintiff.

The awarding of punitive damages tends to be confined to tort cases, such as personal injury lawsuits. These can range from suits involving product liability, premises liability, or robbery. However, a judge may also consider awarding punitive damages in contract cases dealing with a dispute over insurance coverage.

When Are Punitive Damages Awarded?

Punitive damages are not automatically awarded in every case involving misconduct. They are typically reserved for situations where:

  • The defendant’s conduct was willful, malicious, or grossly negligent
  • There is a need to deter similar misconduct in the future
  • Compensatory damages alone are insufficient to achieve justice

For example, in a product liability case, punitive damages may be appropriate if a company knowingly sold defective goods that posed a serious safety risk to consumers.

What Is a Reasonable Punitive Damages Award?

Many people think that awards for punitive damages are always high because of high-profile cases reported in the media. This is contradicted by research from the U.S. Department of Justice, which found that only 2 percent of tort cases result in punitive damages and that the average award is below $50,000.

When deciding the amount of punitive damages to impose, a judge considers the facts of the case, as well as the amounts of criminal and civil penalties related to similar conduct.

In addition, they also take into account the ratio of punitive damages to actual damages. If the ratio is more than 4-1, courts are likely to question the amount of punitive damages awarded. According to the U.S. Supreme Court, cases in which punitive damages are 10 times or more than actual damages are almost certainly unconstitutional.

Sending a Message to Society

Although a judge orders an individual defendant to pay punitive damages to deter them from reckless or negligent conduct, such a decision is also supposed to set an example to others. The court wants to make clear that the type of behavior engaged in by the defendant is unacceptable and will be punished.

For example, imagine a car company knowingly sells vehicles with faulty brakes. In a case brought by injured drivers against the company, the judge orders the company to pay punitive damages, both as a punishment and to demonstrate to other automakers that they cannot sell vehicles with faulty brakes.

Other Types of Damages

Actual and punitive damages are only two types of damages a court can award. A judge may also award a plaintiff:

  • Nominal damages, which are a token payment.
  • Liquidated damages, which can be awarded if the defendant breached a contract.

A judge may also order the defendant to pay fees related to the case, including:

  • Fees for expert witnesses
  • Costs for court reporters
  • Expenses for preparing exhibits
  • Other legal fees
  • Reproduction fees

Liquidated vs. Actual Damages

While actual damages are based on measurable harm, liquidated damages are predetermined amounts specified in a contract. These are typically used when it’s difficult to calculate the exact loss resulting from a breach.

Courts will enforce liquidated damages provisions only if:

  • The amount was reasonable at the time the contract was formed
  • Actual damages would be difficult to ascertain
  • The clause is not deemed a penalty

If actual damages can be clearly measured and are significantly lower than the liquidated amount, courts may invalidate the provision as punitive rather than compensatory.

Consequential Damages

Consequential damages, also known as special or indirect damages, arise from losses that were not the immediate result of the breach or wrongdoing but occurred as a foreseeable consequence. Examples include lost business opportunities or reputation damage.

These damages are only awarded if the plaintiff can prove that the defendant foresaw or should have foreseen the potential consequences of their actions at the time of contract formation.

Frequently Asked Questions

  1. What are actual damages in simple terms?
    Actual damages are the measurable losses a person suffers due to another's wrongful conduct. They include things like medical bills, property damage, and lost income.
  2. How do actual and punitive damages differ?
    Actual damages compensate for harm; punitive damages punish the wrongdoer and serve as a deterrent to others.
  3. Can emotional distress be considered actual damages?
    Yes, courts may award actual damages for emotional distress if it's proven and directly related to the defendant’s actions.
  4. What’s the difference between liquidated and actual damages?
    Liquidated damages are pre-agreed sums stated in a contract, while actual damages reflect the real losses suffered and are proven with evidence.
  5. Are punitive damages taxable?
    Generally, yes. Unlike actual damages for physical injuries (which are often tax-free), punitive damages are usually taxable.

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