How Are Damages Calculated After an Injury or Lawsuit

With few exceptions, 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, as much as possible, 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 (Pecuniary Damages, Special Damages) - The out of pocket financial losses suffered by the injured party.

    • Non-Economic Damages (Non-Pecuniary Damages, General Damages) - Expenses above and beyond out of pocket financial losses, including damages for pain and suffering, loss of enjoyment of life, or loss of consortium.

  • Punitive Damages (Exemplary Damages) - Damages intended to punish 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.

  • 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 any appreciable compensable 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. 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. That 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.

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. Where 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.

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 lost between the time of a wrongful termination and the time of the verdict) and front pay (wages that are likely to be lost in the future, as a result of the loss of the job and possibly the loss of a career path). Similarly, a person who suffers a physical injury may not be able to return to work and may be entitled to damages for lost wages.

When determining the damage award, it is necessary to examine the plaintiff's earning capacity before the defendant's wrongful conduct, as well as afterward. As a part of the determination of earning capacity, it is necessary to examine factors which will affect future employability, including the person's age, physical and mental health, educational background, job skills and aptitudes, and the conditions in the labor market for the areas in which the plaintiff may be eligible for work.

Expert testimony can help establish these various factors as they relate to the plaintiff, and an expert will be able to produce a opinion projecting how the defendant's wrongful conduct affected the plaintiff's past and future earnings. In some cases, medical, vocational, or psychological testimony may also be required to establish the loss of physical or mental capacity to perform the type of employment previously held by the plaintiff, or to explain or challenge any limits asserted relating to the plaintiff's ability to return to work. Often, both the plaintiff and defendant will present experts with competing projections of damages.

Damages to Real Estate

Where real estate is damaged, 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, the reduction in the market value of the property as opposed to the cost of repair.

It is often necessary to utilize experts in these cases, and there are a wide variety of appraisers who can provide testimony as to the value of pretty much any real or personal property, or damage to a business interest.

Pain and Suffering

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

This is an area in which a lawyer's advocacy may have a significant impact on the amount of a damages award. Expert testimony may also be beneficial, both to the plaintiff and defense, on issues including the relationship between the injury and the claimed wrongful act by the defendant, the plaintiff's treatment and prognosis, and the extent of any disability that results from the injury.

Getting Appropriate Compensation

It is often asserted that the effective advocacy for damages is more of an art than a science. The extent to which that claim 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 Sep 19, 2017.