Torts II

Compensatory Damages

Compensatory damages are intended to represent the closest possible financial equivalent of the loss or harm suffered by the plaintiff, to make the plaintiff whole again, to restore the plaintiff to the position the plaintiff was in before the tort occurred.

This is done with money. All losses must be translated into a dollar value to compensate the plaintiff.

There are two types of compensatory damages:

  1. Special Damages

    Special damages are compensatory damages awarded over economic losses, such as:

    • Past and future medical expenses
    • Past and future lost wages
    • Loss or impairment of earning capacity
      • This means one cannot do the job that he wants to anymore, even if his new job does not pay less.

    Future costs must consider:

    1. Inflation
    2. Interest
    Reduce to Present Value

    An award for future damages must be awarded as a definite lump sum amount set at the time of the judgment.

    There are three ways of reducing to present value:

    1. Inflation-discount method
      • Accounts for interest and inflation separately.
    2. Real interest method
      • Sets a flat interest rate approximating the practical rate.
      • Based on the principal that overpaying the plaintiff is better than underpaying him.
    3. Total offset method
      • Says that interest and inflation will cancel each other out and just pays the actual awarded amount.
  2. General Damages

    General damages are compensatory damages awarded over non-economic harms, such as:

    • Pain & suffering
    • Mental anguish
    • Loss of function or appearance
    • Loss of enjoyment of life

    With general damages, it is not necessary to reduce to present value.

    Sometimes general damages are calculated using the "per diem" method, which says to multiply what such harm for a short period of time should be compensated for by the length of time that the plaintiff must endure the harm, i.e. their life expectancy.

Compensatory damages are not taxed, although a minority of jurisdictions award lost wages based on what the plaintiff's post-tax income would have been.