How Are Damages Calculated After an Injury or Lawsuit

The term damages refers to compensation that is recovered by a person as compensation for an injury or loss. Damages may include lost income, wages and other economic losses, compensation for pain, suffering and other non-economic losses, and in  some cases awards of punitive damages meant to punish a wrongful actor and to deter others from committing similar wrongful acts.

Most lawsuits involve a demand for money damages, meaning that it is necessary to determine an appropriate amount of money to compensate injured plaintiffs for their injuries.

Some types of injury are more easily translated into dollars than others. For example, the calculation of how much money is owed on a loan, or the amount of money that a business lost as the result of a wrongful act may be relatively mathematical, as can the loss of value to damaged personal property or real estate. The calculation of other types of damage, such as an injured plaintiff's pain and suffering in a personal injury case, can be very subjective.

In a lawsuit, plaintiffs have the burden of proving the types and amounts of damages they have suffered. Sometimes the proof of damages will require expert testimony, such as the presentation of the testimony of an accountant or appraiser.

Courts will not compensate plaintiffs for damages deemed speculative, fanciful, or unsupported by admissible evidence. However, a plaintiff may be able to sufficiently evidence damages which are not yet fixed, such as future damages, on the basis of reasonable projections based upon the evidence and, as necessary, the opinions of experts.

Types of Damages

The types of damages that may be awarded in a judgment include:

  • Compensatory Damages: Damages that are intended to restore the plaintiff to the position that the plaintiff would but for the injury that resulted from the defendant's wrongful conduct.

    • Economic Damages: The out of pocket financial losses suffered by the injured party. Economic damages are also known as pecuniary damages or special damages.

    • Non-Economic Damages: Expenses that go beyond financial losses, including damages for pain and suffering, loss of consortium, or loss of enjoyment of life. Non-economic damages are also known as non-pecuniary damages or general damages.

  • Punitive Damages: Damages that are intended to punish a defendant's wrongful conduct. Whether or not punitive damages are available depends upon the law under which a cause of action arises. Some states do not permit punitive damages awards, or have a very restricted approach to punitive damages. Some jurisdictions use the term exemplary damages for this form of damage award.

  • Nominal Damages: An award of a small sum of money (often $1) to a plaintiff who has proved an injury, but has not been able to demonstrate a significant compensable injury or losses.

The Collateral Source Rule

The Collateral Source Rule holds that a defendant should not benefit from a plaintiff's fiscal prudence. For example, in purchasing insurance coverage to protect against a loss, the rule holds that the defendant should still pay full damages rather than benefiting from the injured person's foresight in purchasing insurance.

When applied, this rule may result in a plaintiff's collecting damages twice, once through an insurance settlement and a second time through legal proceedings against the defendant who caused the loss. Such a double recovery rarely actually happens as insurance companies normally require that an insured person assign them subrogation rights, such that if money can be recovered from the defendant for a claim paid by the insurance company it goes to the insurance company instead of the insured person.

When the collateral source rule does not apply the defendant gets a set-off, a dollar-for-dollar reduction against the judgment, in the amount the plaintiff has received from the collateral source.

In most jurisdictions, the collateral source rule has been modified or eliminated from application in certain types of cases, particularly personal injury and medical malpractice cases.

Examples of Damages

Although the specific facts of a case. and the causes of action proved by a plaintiff in court, will affect the amount of damages, the following examples demonstrate factors that may be considered when calculating damages:

Lost Wages and Earning Capacity

In an employment law case, a plaintiff may seek economic damages for:

  • Back Pay: Wages that are lost between the time of a wrongful termination and the time of the verdict or settlement, and
  • Front Pay: Wages that are likely to be lost in the future as a result of the loss of the job and possibly loss or reduction of future job or career opportunities.

Similarly, a person who has suffered a physical injury may not be able to return to work on a temporary or permanent basis and, as a result, may be entitled to damages for lost wages.

When determining a damage award, it is necessary to examine the plaintiff's earning capacity as it existed both before and after the defendant's wrongful conduct. As a part of the determination of earning capacity it is necessary to examine factors that will affect future employability of the plaintiff, including:

  • Age,
  • Physical and mental health,
  • Educational background, and
  • Job skills and aptitudes.

It may also be necessary to examine the condition of the labor market for the areas in which the plaintiff may be eligible for future work.

Expert testimony may help establish these factors as they relate to the plaintiff. An employment expert will be able to produce a opinion projecting how the defendant's wrongful conduct affected the plaintiff's past income and probable future earnings.

In some cases, medical, vocational, or psychological testimony may also be introduced to prove damages. Such testimony may help:

  • Establish that the plaintiff suffered a loss of physical or mental capacity that will prevent the plaintiff from performing the type of employment previously held, or
  • To explain or challenge any limits asserted relating to the plaintiff's ability to return to work.

Often, both the plaintiff and defense will present experts with competing projections of damages.

Damages to Real Estate

For claims alleging damage to real estate, for example as the result of harm to a physical structure or due to a fire, economic damages may be assessed in the amount necessary to fix or remediate the damage.

Depending on the circumstances, damages may instead be measured by the effect of the harm on the property's market value. That is, damages may be awarded in the amount of the reduction in the market value of the property as opposed to the cost of repair.

It is often necessary to utilize experts to prove the value of damage to real property. Many appraisers can provide testimony as to the value of pretty much any real or personal property, or damage to a business interest.

Pain and Suffering

For physical injuries and mental trauma, a plaintiff will usually seek compensation for pain and suffering.

There is no clear method of determining the value of pain, or for the ability to lead a normal, pain-free life. Given similar facts and injuries, the manner in which the effect of a plaintiff's injury or disability is demonstrated to a jury, and the manner in which damages are requested during trial, may significantly raise or lower an award of damages.

A lawyer's advocacy may have a significant impact on a plaintiff's recovery of pain and suffering damages. For many issues, including:

  • The relationship between the injury and the claimed wrongful act by the defendant,
  • The plaintiff's medical treatment and prognosis, and
  • The extent of any disability that results from the injury,

Expert witness testimony may be beneficial to both the plaintiff and defense.

Getting Appropriate Compensation

It is often argued that the effective advocacy for damages is more of an art than a science. The extent to which that belief is true depends both on the facts of a case and the type and nature of the injury suffered.

When damages are significant, a good lawyer and, as necessary, the testimony of a good expert economist or appraiser, can potentially make an enormous difference in the outcome of a case and the size and adequacy of the ultimate settlement or award of damages.

Copyright © 2004 Aaron Larson, All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you use a quotation, excerpt or paraphrase of this article, except as otherwise authorized in writing by the author of the article you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.

This article was last reviewed or amended on May 7, 2018.