Reviewed by Stefan Tirschler
Updated October 17, 2022
da·ma·ges | ˈda-mij-es
Definition: Financial remedy for loss or injury paid by a wrongdoing party to the harmed party.
As a result of losing the lawsuit, he was ordered to pay $400,000 in damages.
In law, damages are a form of compensation for injury or loss. When one person commits some wrongdoing against another person, the wrongdoer may have to pay damages to the wronged person.
Damages apply when a court has determined that a wrongdoing party owes something to the party they harmed. The court will order the wrongdoer to compensate the affected party for their loss—that compensation is known as damages.
Or, more specifically, they’re compensatory damages; we’ll get more into the different types of damages in the next section.
The main idea behind damages is that someone who’s suffered an injury or loss should be returned to the financial position they were in before the loss.
For example: if someone is injured in a car accident that wasn’t their fault, they shouldn’t suffer any monetary loss as a result. Their medical and rehabilitation costs, their lost wages, the damage to their car… the person who caused the accident (or their liability insurance) should have to pay for these.
Once the law has determined that person’s fault in the accident, they’ll be ordered to pay damages to the victim.
Many lawsuits result in one party paying damages to another—it’s not just vehicle accidents.
Soumya is a mail carrier. During her shift one winter day, she was climbing the steps of Jeremy’s house to deliver his mail. Despite freezing rain the previous night, Jeremy hadn’t made any attempt to keep his front walkway safe, like using salt or sand—which was his duty as the homeowner.
Soumya’s knee was badly injured in the fall. She couldn’t work for several weeks, and needed plenty of medical attention and rehabilitation. Following a civil suit, Jeremy was ordered to pay damages to Soumya. The damages were to cover her lost wages and her medical and rehab costs, and to address the pain and suffering she experienced.
In this example, Soumya receives two forms of damages:
Even though non-pecuniary damages aren’t repaying a financial loss, they’re still compensatory. They are still compensating the wronged party for their experiences.
That’s how compensatory damages work. Let’s look at a few other types before we talk about damages and insurance.
We’ve covered compensatory damages, which are the most common type that average people are likely to run into. However, a court may assess other types of damages depending on the situation:
There are, of course, many forms of damages depending on the situation. Though, most people won’t have to be on the giving or receiving end of damages too often in their life.
Now, if you do find yourself ordered to pay damages, where does insurance come into the picture?
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Ideally, you’ll never have to pay damages to anyone—but accidents happen.
Depending on the situation, you can often turn to your home or auto insurance policy to cover compensatory damages for which you’re liable. Both home and auto insurance policies include liability coverage.
In home insurance, liability coverage includes both personal liability and premises liability protection:
Everyone is responsible for making their home reasonably safe for visitors. Look at the previous section’s slip-and-fall example: Jeremy, the homeowner, had a responsibility to de-ice his walkways. Since he didn’t, he was found to be negligent, and ordered to pay damages. His home insurance policy may have responded to help cover those damages.
Liability insurance protects against many damages for which the policyholder is found liable. However, it’s important to remember that it only covers compensatory damages. Insurance won’t cover punitive or aggravated damages.
Additionally, liability insurance under a home insurance policy also does not cover any liability assumed under contract, unless it would have applied (and been covered) even if the contract did not exist. People who routinely accept contractual liability—like home business owners—should ensure they purchase appropriate protection, either as an addition to their home insurance policy or elsewhere.
To learn more, visit our article about liability insurance.
Looking for another insurance definition? Look it up in The Insurance Glossary, home to dozens of easy-to-follow definitions for the most common insurance terms. Or, get an online quote in under 5 minutes and find out how affordable personalized home insurance can be.
About the expert: Stefan Tirschler
Stefan is responsible for underwriting leadership, market expansion, and product research and development for Square One's operations. Stefan has earned his Fellow Chartered Insurance Professional designation, and maintains a level 2 general insurance license in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. Stefan is also an Education Committee member and CIP/GIE instructor for the Insurance Institute of Canada.
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Even when you take precautions, accidents can happen. Home insurance is one way to protect your family against financial losses from accidents. And, home insurance can start from as little as $12/month.