Texas Property and Casualty License Practice Exam

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What is the primary purpose of compensatory damages?

To penalize the offender
To cover legal expenses
To indemnify the injured party
To deter future wrongdoing

The correct answer is: To indemnify the injured party

The primary purpose of compensatory damages is to indemnify the injured party. This means that the amount awarded is designed to make the injured party whole again, or to restore them to the financial position they were in prior to the harm or loss experienced. Compensatory damages cover both tangible and intangible losses, including medical expenses, lost wages, property damage, and pain and suffering. The essence of compensatory damages is that they aim to compensate the victim rather than punish the wrongdoer or serve as a deterrent to others. While penalizing an offender may involve punitive damages, which serve a different purpose, compensatory damages strictly address the financial losses incurred by the victim. Legal expenses may be covered separately through different mechanisms, but compensatory damages focus on the injury itself. Lastly, while deterrence might be a consequence of awarding damages, it is not the primary intention behind compensatory damages. Thus, the focus remains on providing financial restitution to the aggrieved individual.