Types of damages in commercial litigation

On Behalf of | Feb 15, 2023 | Commercial Disputes

In commercial litigation, several different kinds of damages can be awarded to a winning party by the judge and jury. A party can award compensatory damages, incidental damages, consequential damages, nominal damages, liquidated damages, and punitive damages to the aggrieved party. Different types of damages serve different purposes- from punishing the at-fault party for egregious behavior to paying for the entirety of the plaintiff’s losses or even simply proving that the defendant’s actions were wrong.  

Compensatory Damages 

When another party has acted negligently or unlawfully, compensatory damages may be awarded to an injured party. Compensation is awarded in civil court cases where loss has occurred because of the negligence of another party. Plaintiff has to show they had a financial loss, which was caused by the defendant and can be estimated.  

Incidental damages 

The court will award incidental damages to a party (usually a buyer or seller) injured by the breach of another party for the costs of transporting the goods or arranging to cover the contract after the breach occurs or any other damages reasonably related to the damages caused by the breach. 

Consequential damages

Consequential damages are awarded to a plaintiff when damages weren’t directly caused by the defendant but caused by their actions. Potential outcomes include property damage, injury to a person, lost profits, loss of the right to do business or lost goodwill. 

Liquidated damages   

A contractual penalty is a sum that the parties to a contract agree to pay in the event of a breach of contract, covering otherwise intangible or hard-to-determine losses. These damages are typically agreed upon at the beginning of the contract. 

Nominal damages  

Nominal damages are when a very small sum of money- usually one dollar- is awarded to a person that proved their legal rights were violated but did not prove that they should receive financial compensation for their actions. As opposed to other damages which compensate for losses caused by the defendant, nominal damages are awarded to recognize the plaintiff’s success in court. Even though nominal damages are seemingly insignificant, they’re still important because they illustrate the plaintiff had legal rights that the defendant violated. 

Punitive damages 

In contrast to compensatory damages, which compensate the injured party for the losses they have incurred, punitive damages punish the at-fault party. Punitive damages are paid at the court’s discretion and are awarded when the defendant’s behavior was especially unethical or grossly negligent. These damages are typically the most difficult to prove and the least common compensation awarded in verdicts.