Damages in Insurance

What Are Damages in Insurance?

In insurance, damages refer to the monetary compensation awarded to an individual or entity that has suffered a loss due to another party’s actions or negligence. In the context of landlord insurance, damages are most often tied to liability claims—such as a tenant or third party suing a landlord for bodily injury or property damage on a rental property.

Understanding the different types of damages is essential for landlords, since not all damages are covered by a basic policy. Here are the main categories:

• Compensatory Damages: These are awarded to cover actual losses, such as medical bills or property repairs. Most liability coverage in landlord insurance policies is designed to pay for these.
• Special Damages: A subcategory of compensatory damages, these cover quantifiable monetary losses like lost wages or out-of-pocket expenses incurred by the injured party.
• Consequential Damages: These result indirectly from a breach or negligent act. For instance, if a landlord fails to fix a water leak and a tenant’s belongings are damaged, the tenant might sue for the cost of replacement and for hotel expenses during repairs.
• Punitive Damages: These are intended to punish particularly reckless or intentional misconduct—not just compensate for losses. Landlord insurance policies typically do not cover punitive damages, since they involve wrongdoing rather than accident.
• Liquidated Damages: These are predetermined sums listed in a lease agreement for specific breaches, such as breaking a lease early. While enforceable in court, these are generally outside the scope of insurance coverage.
• Nominal Damages: These are symbolic sums awarded when a legal wrong occurred but no actual financial loss was proven. For landlords, this might come up in small claims or tenant disputes.
  

It’s important for landlords to carry adequate liability coverage to protect against lawsuits seeking compensatory or consequential damages. However, being aware of uncovered categories—like punitive damages—can help inform lease policies and risk management strategies. Learn more about the legal risks landlords face, including claims of emotional distress, and how coverage applies.