What distinguishes punitive and exemplary damages from compensatory damages?

Punitive and exemplary damages are specifically designed to serve as a form of punishment directed towards the breaching party or wrongdoer. These types of damages go beyond merely compensating the victim for their losses; instead, they aim to deter the offender from committing similar acts in the future and to send a message to society regarding the seriousness of the misconduct. This distinguishes them from compensatory damages, which are intended solely to make the injured party whole by compensating them for actual economic and non-economic losses resulting from the wrongful act.

Compensatory damages are aimed at covering the losses incurred by the plaintiff, including both tangible and intangible aspects, while punitive or exemplary damages are not primarily concerned with the victim's losses. As punitive damages are awarded on the grounds of wrongdoing or egregious behavior rather than just a financial loss, their purpose is fundamentally different.

While other options present various legal concepts, they do not accurately reflect the unique nature of punitive and exemplary damages in relation to compensatory damages. For example, it is not true that punitive damages are limited to cases of fraud or that they apply only to non-economic losses; they can be awarded in a variety of contexts, particularly those involving willful misconduct. Therefore, the central purpose of punitive and exemplary