Compensatory Damages

Definition - What does Compensatory Damages mean?

Compensatory damages refer to the sum of money the at-fault party must pay an injured party as compensation for causing some sort of injury or loss. They are awarded in civil suits wherein the negligence or wrongful conduct of one party causes another's loss. In the context of insurance, it is often insurance companies who actually 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 of an accident damaging another party's vehicle. However, the plaintiff must also provide evidence to quantify the amount of loss in front of the court. Unlike punitive damages, which is awarded in excess of compensatory damages to punish the at-fault party and discourage future negligence, the latter is solely meant to repair or replace what was lost. Without insurance to protect against such liabilities, many individuals and businesses might find themselves facing financial hardships or bankruptcy.

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