Future Business Leaders of America (FBLA) Business Law Practice Exam

What type of damages aim to exceed the innocent party's actual loss?

1. Compensatory damages

2. Punitive damages

3. Statutory damages

4. Nominal damages

The correct answer is: Punitive damages

Punitive damages are designed to go beyond simply compensating the innocent party for their actual losses. Instead, their primary purpose is to punish the wrongdoer for particularly egregious or reckless behavior and deter similar conduct in the future. They are awarded in cases where the defendant's actions are found to be willful, malicious, or fraudulent, indicating a need for a stronger response than what mere compensatory damages can provide. In contrast, compensatory damages focus on providing a monetary amount to cover the actual losses incurred by the plaintiff. Statutory damages are set amounts established by law for specific violations and do not necessarily relate to the actual loss experienced. Nominal damages involve small sums awarded when a legal wrong has occurred but without significant loss, primarily to uphold a right. Therefore, punitive damages are distinct in their aim to impose additional penalties on the offender, reflecting society’s abhorrence of the behavior in question.