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Monetary compensation that is awarded by a court in a civil action to an individual who has been injured through the wrongful conduct of another party.
Damages attempt to measure in financial terms the extent of harm a plaintiff has suffered because of a defendant's actions. Damages are distinguishable from costs, which are the expenses incurred as a result of bringing a lawsuit and which the court may order the losing party to pay. Damages also differ from the verdict, which is the final decision issued by a jury.
The purpose of damages is to restore an injured party to the position the party was in before being harmed. As a result, damages are generally regarded as remedial rather than preventive or punitive. However, punitive damages may be awarded for particular types of wrongful conduct. Before an individual can recover damages, the injury suffered must be one recognized by law as warranting redress, and must have actually been sustained by the individual.
The law recognizes three major categories of damages: compensatory damages, which are intended to restore what a plaintiff has lost as a result of a defendant's wrongful conduct; nominal damages, which consist of a small sum awarded to a plaintiff who has suffered no substantial loss or injury but has nevertheless experienced an invasion of rights; and punitive damages, which are awarded not to compensate a plaintiff for injury suffered but to penalize a defendant for particularly egregious, wrongful conduct. In specific situations, two other forms of damages may be awarded: treble and liquidated.
With respect to compensatory damages, a defendant is liable to a plaintiff for all the natural and direct consequences of the defendant's wrongful act. Remote consequences of a defendant's act or omission cannot form the basis for an award of compensatory damages.
Consequential damages, a type of compensatory damages, may be awarded when the loss suffered by a plaintiff is not caused directly or immediately by the wrongful conduct of a defendant, but results from the defendant's action instead. For example, if a defendant carried a ladder and negligently walked into a plaintiff who was a professional model, injuring the plaintiff's face, the plaintiff could recover consequential damages for the loss of income resulting from the injury. These consequential damages are based on the resulting harm to the plaintiff's career. They are not based on the injury itself, which was the direct result of the defendant's conduct.
The measure of compensatory damages must be real and tangible, although it can be difficult to fix the amount with certainty, especially in cases involving claims such as pain and suffering or emotional distress. In assessing the amount of compensatory damages to be awarded, a trier of fact (the jury or, if no jury exists, the judge) must exercise good judgment and common sense, based on general experience and knowledge of economics and social affairs. Within these broad guidelines, the jury or judge has wide discretion to award damages in whatever amount is deemed appropriate, so long as the amount is supported by the evidence in the case.
A plaintiff can recover damages for a number of different injuries suffered as a result of another person's wrongful conduct. The plaintiff can recover for a physical impairment if it results directly from a harm caused by the defendant. The jury, in determining damages, considers the present as well as long-range effects of the disease or injury on the physical well-being of the plaintiff, who must demonstrate the disability with reasonable certainty. Compensatory damages can be awarded for mental impairment, such as a loss of memory or a reduction in intellectual capacity suffered as a result of a defendant's wrongful conduct.
A plaintiff may recover compensatory damages for both present and future physical pain and suffering. Compensation for future pain is permitted when there is a reasonable likelihood that the plaintiff will experience it; the plaintiff is not permitted to recover for future pain and suffering that is speculative. The jury has broad discretion to award damages for pain and suffering, and its judgment will be overturned only if it appears that the jury abused its discretion in reaching the decision.
Mental pain and suffering can be considered in assessing compensatory damages. Mental pain and suffering includes fright, nervousness, grief, emotional trauma, anxiety, humiliation, and indignity. Historically, a plaintiff could not recover damages for mental pain and suffering without an accompanying physical injury. Today, most jurisdictions have modified this rule, allowing recovery for mental anguish alone where the act precipitating the anguish was willful or intentional, or done with extreme care-lessness or recklessness. Ordinarily, mental distress brought on by sympathy for the injury of another will not warrant an award of damages, although some jurisdictions may allow recovery if the injury was caused by the willful or malicious conduct of the defendant. For instance, if an individual wrongfully and intentionally injures a child in the presence of the child's mother, and the mother suffers psychological trauma as a result, the defendant can be liable for the mother's mental suffering. In some jurisdictions, a bystander can recover damages for mental distress caused by observing an event in which another person negligently, but not intentionally, causes harm to a family member.
Compensatory damages of an economic nature may also be recovered by an injured party. A plaintiff may recover for loss of earnings resulting from an injury. The measure of lost earnings is the amount of money that the plaintiff might reasonably have earned by working in her or his profession during the time the plaintiff was incapacitated because of the injury. In the case of a permanent disability, this amount can be determined by calculating the earnings that the injured party actually lost and multiplying that figure out to the age of retirement—with adjustments. If the amount of earnings actually lost cannot be determined with certainty, as in the case of a salesperson paid by commission, the plaintiff's average earnings or general qualities and qualifications for the occupation in which she or he has been employed are considered. Evidence of past earnings can also be used to determine loss of future earnings. As a general rule, lost earnings that are speculative are not recoverable, although each case must be examined individually to determine whether damages can be established with reasonable certainty. For example, a plaintiff who bought a restaurant immediately before suffering an injury could not recover damages for the profits he might have made running it, because such profits would be speculative. A plaintiff who is unable to accept a promotion to another job because of an injury would stand a better chance of recovering damages for loss of earnings, because the amount lost could be established with more certainty.
Individuals injured by the wrongful conduct of another may also recover damages for impairment of earning capacity, so long as that impairment is a direct and foreseeable consequence of a disabling injury of a permanent or lingering nature. The amount of damages is determined by calculating the difference between the amount of money the injured person had the capacity to earn prior to the injury and the amount he or she is capable of earning after the injury, in view of his or her life expectancy.
Loss of profit is another element of compensatory damages, allowing an individual to recover if such a loss can be established with sufficient certainty and is a direct and probable result of the defendant's wrongful actions. Expected profits that are uncertain or contingent upon fluctuating conditions would not be recoverable, nor would they be awarded if no evidence existed from which they could be reasonably determined.
A plaintiff can recover all reasonable and necessary expenses brought about by an injury caused by the wrongful acts of a defendant. In a contract action, for example, the party who has been injured by another's breach can recover compensatory damages that include the reasonable expenses that result from reliance on the contract, such as the cost of transporting perishable goods wrongfully refused by the other contracting party. In other actions, expenses awarded as part of compensatory damages may include medical, nursing, and prescription drug costs; the costs of future medical treatment, if necessary; or the costs of restoring a damaged vehicle and of renting another vehicle while repairs are performed.
Interest can be awarded to compensate an injured party for money wrongfully withheld from her or him, as when an individual defaults on an obligation to pay money owed under a contract. Interest is ordinarily awarded from the date of default, which is set by the time stated in the contract for payment, the date a demand for payment is made, or the date the lawsuit alleging the breach of the contract is initiated.
Nominal damages are generally recoverable by a plaintiff who successfully establishes that he or she has suffered an injury caused by the wrongful conduct of a defendant, but cannot offer proof of a loss that can be compensated. For example, an injured plaintiff who proves that a defendant's actions caused the injury but fails to submit medical records to show the extent of the injury may be awarded only nominal damages. The amount awarded is generally a small, symbolic sum, such as one dollar, although in some jurisdictions it may equal the costs of bringing the lawsuit.
Punitive damages, also known as exemplary damages, may be awarded to a plaintiff in addition to compensatory damages when a defendant's conduct is particularly willful, wanton, malicious, vindictive, or oppressive. Punitive damages are awarded not as compensation, but to punish the wrongdoer and to act as a deterrent to others who might engage in similar conduct.
The amount of punitive damages to be awarded lies within the discretion of the trier of fact, which must consider the nature of the wrongdoer's behavior, the extent of the plain-tiff's loss or injury, and the degree to which the defendant's conduct is repugnant to a societal sense of justice and decency. An award of punitive damages will usually not be disturbed on the grounds that it is excessive, unless it can be shown that the jury or judge was influenced by prejudice, bias, passion, partiality, or corruption.
In the late twentieth century, the constitutionality of punitive damages has been considered in several U.S. Supreme Court decisions. In 1989, the Court held that large punitive damages awards did not violate the Eighth Amendment prohibition against the imposition of excessive fines (Browning-Ferris Industries of Vermont v. Kelco Disposal, 492 U.S. 257, 109 S. Ct. 2909, 106 L. Ed. 2d 219). Later, in Pacific Mutual Life Insurance Co. v. Haslip, 499 U.S. 1, 111 S. Ct. 1032, 113 L. Ed. 2d 1 (1991), the Court held that unlimited jury discretion in awarding punitive damages is not "so inherently unfair" as to be unconstitutional under the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution. And in TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443, 113 S. Ct. 2711, 125 L. Ed. 2d 366 (1993), the Court ruled that a punitive damages award that was 526 times the compensatory award did not violate due process. Both Haslip and TXO Production disappointed observers who hoped that the Court would place limits on large and increasingly common punitive damages awards. In a 1994 decision, the Court did strike down an amendment to the Oregon Constitution that prohibited judicial review of punitive damages awards, on the ground that it violated due process (Honda Motor Co. v. Oberg, 512 U.S. 415, 114 S. Ct. 2331, 129 L. Ed. 2d 336).
In a jury proceeding, the court may review the award, although the amount of damages to be awarded is an issue for the jury. If the court determines that the verdict is excessive in view of the particular circumstances of the case, it can order remittitur, which is a procedural process in which the jury verdict is reduced. The opposite process, known as additur, occurs when the court deems the jury's award of damages to be inadequate and orders the defendant to pay a greater sum. Both remittitur and additur are used at the discretion of the trial judge, and are designed to remedy a blatantly inaccurate damages award by the jury without the necessity of a new trial or an appeal.
In some situations, where provided by statute, treble damages may be awarded. In such situations, a statute will authorize a judge to multiply the amount of monetary damages awarded by a jury by three, and to order that a plaintiff receive the tripled amount. The Clayton Act of 1914 (15 U.S.C.A. §§ 12 et seq.), for example, directs that treble damages be awarded for violations of federal antitrust laws.
Liquidated damages constitute compensation agreed upon by the parties entering into a contract, to be paid by a party who breaches the contract to a nonbreaching party. Liquidated damages may be used when it would be difficult to prove the actual harm or loss caused by a breach. The amount of liquidated damages must represent a reasonable estimate of the actual damages that a breach would cause. A contract term fixing unreasonably large or disproportionate liquidated damages may be void because it constitutes a penalty, or punishment for default. Furthermore, if it appears that the parties have made no attempt to calculate the amount of actual damages that might be sustained in the event of a breach, a liquidated damages provision will be deemed unenforceable. In determining whether a particular contract provision constitutes liquidated damages or an unenforceable penalty, a court will look to the intention of the parties, even if the terms liquidated damages and penalty are specifically used and defined in the contract.
Appellate Review of Damages
When reviewing a trial court's award of damages, an appellate court generally examines all of the evidence from the trial to determine whether the evidence supports the award. When reviewing awards for compensatory damages, an appellate court determines from the lower court's record whether the trial judge abused his or her discretion in allowing a jury's damage award to stand or in making his or her own damage award, called a bench award. A bench award by a judge is typically subject to closer scrutiny than an award by a jury.
An appellate court may determine that a damage award is excessive or inadequate. If the court of appeals determines that the damages are excessive or inadequate, and can determine the proper amount with reasonable certainty, the court may adjust the award so that it corresponds with the evidence. One common method for altering an award is through the use of remittitur, whereby the judge directs the plaintiff either to accept a lower award or face a new trial. On the other hand, if the appellate court cannot determine the proper amount of the award based upon the evidence, the court may order a new trial. A court of appeals will also review a trial court's decision whether to admit or to exclude evidence that supports the damage award, such as the decision whether to admit or exclude testimony regarding scientific evidence. Appellate courts typically review the trial court's decision with respect to admission or exclusion of evidence under the abuse of discretion standard.
Courts review awards of punitive damages differently than other types of damage awards. Several federal courts of appeals are engaged in an ongoing struggle over what standard of review should be applied to punitive damages at the appellate court level. In Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 121 S. Ct. 1678, 149 L. Ed. 2d 674 (2001), the U.S. Supreme Court ruled that appellate courts must conduct de novo review rather than apply an abuse of discretion standards. This ruling means that federal appellate courts have great freedom to review and reduce punitive damages based on previous U.S. Supreme Court standards. The decision is one more example of the Court expressing its desire to control excessive punitive damage awards.
Cooper Industries, Inc. involved a suit for trademark infringement, where Cooper Industries was accused of using photographs of a knife manufactured by Leatherman Tool Group. A jury awarded Leatherman $50,000 in general damages and $4.5 million in punitive damages. On appeal, the U.S. Court of Appeals for the Ninth Circuit upheld the trial court, basing its analysis on the abuse of discretion standard. This standard is very deferential to the trial court's actions, allowing the appeals courts to overturn a decision only if the trial judge clearly abused his or her authority. By comparison, de novo review empowers the appeals court to review all of the evidence on punitive damages without regard to the trial court's decision.
The U.S. Supreme Court agreed to hear Cooper's appeal to resolve the division among the federal circuits over the appropriate standard of review for punitive damages. The Court, in an 8–1 decision, determined that the federal courts should apply de novo review. Justice John Paul Stevens, writing for the majority, concluded that the nature of punitive damages demanded that appeals courts conduct a fresh inquiry. He noted the similarities of punitive damages to criminal fines and cited various criminal cases that addressed the proportionality of sentences that relied on de novo review. Moreover, Stevens rejected the idea that when a jury awards punitive damages, it makes a finding of fact that could not be disturbed by an appeals court unless it was clearly erroneous.
Gibeaut, John. 2003. "Pruning Punitives: High Court Stresses Guidelines for Deciding Damages." ABA Journal 89 (June).
Kagehiro, Dorothy K., and Robert D. Minick. 2002. "How Juries Determine Damages Awards." For the Defense 44 (July).
Reis, John W. 2002. "Measure of Damages in Property Loss Cases." Florida Bar Journal 76 (October).
Shaw, Robert Ward. 2003. "Punitive Damages in Medical Malpractice: an Economic Evaluation." North Carolina Law Review 81 (September).