In tort law, compensatory damages, also known as actual damages, are damages awarded by a court equivalent to the loss a party suffered. If a party’s right was technically violated but they suffered no harm or losses, a court may instead grant nominal damages.
The Supreme Court held in Birdsall v. Coolidge, 93 U.S. 64 (1876) that the phrases "compensatory damages" and "actual damages" are identical.
The amount awarded is based on the proven harm, loss, or injury suffered by the plaintiff. This award does not include punitive damages, which may be awarded when the defendant's actions are especially reckless or malicious. Receiving compensatory damages does not prevent a party from also receiving punitive damages.
When calculating compensatory damages, courts will often look at the fair market value of destroyed/damaged property, lost wages/income, and necessarily incurred expenses. Courts may also include damages for emotional distress; however, due to the difficulty of placing an economic value on these intangible factors, the application is inconsistent.
[Last updated in June of 2022 by the Wex Definitions Team]