Compensatory Damages

What Does Compensatory Damages Mean?

Compensatory damages refer to the amount of money the at-fault party must pay an injured party as compensation for causing injury or loss. These damages are awarded in civil suits where the negligence or wrongful conduct of one party results in another’s loss. In the context of insurance, it is often the insurance companies that pay the compensatory damages.

Insuranceopedia Explains Compensatory Damages

For example, an insurance company might pay compensatory damages after one of its policyholders is found to be at fault for an accident that damages another party’s vehicle. The insurer only covers damages up to the policy’s liability limits, so choosing the right amount of liability coverage can be the difference between a claim being fully paid and leaving the driver owing thousands. However, the plaintiff must also provide evidence to quantify the amount of the loss in court. Unlike punitive damages, awarded over compensatory damages to punish the at-fault party and discourage future negligence, compensatory damages are solely intended to repair or replace what was lost. Without insurance to protect against such liabilities, many individuals and businesses could face financial hardship or bankruptcy.

On the business side, general liability insurance is what most small companies carry to cover compensatory damages from bodily injury or property damage claims filed against them.