Mississippi Property & Casualty Practice Exam

What defines compensatory damages in insurance?

1. Compensation for punitive damages

2. Reimbursement for general and special losses only

3. Payment for speculative losses

4. Coverage for future losses and injuries

The correct answer is: Reimbursement for general and special losses only

Compensatory damages in insurance specifically refer to the payment made to an insured party to reimburse them for their actual losses, both general and special. This type of compensation aims to make the injured party whole by covering the costs associated with losses directly resulting from an incident, like property damage or bodily injury. General losses can include pain and suffering or loss of consortium, while special losses involve quantifiable financial impacts, such as medical expenses or property repairs. The focus is on actual, verifiable losses rather than potential or hypothetical damages, which is why this answer aligns accurately with the definition of compensatory damages. Options pertaining to punitive damages, speculative losses, or future damages do not accurately characterize compensatory damages, as they either involve different types of financial compensation or concern losses that are uncertain or not yet incurred.