What are differential damages?

In the event of an accident at work, injured employees are compensated by the National Institute for Insurance against Accidents at Work (INAIL).

However, INAIL does not compensate for 100% of the damages suffered. Rather, its settlement of damages is based on metrics that provide lower compensation than that usually awarded by the civil courts. Further, INAIL covers only certain types of damage (eg, moral damages are excluded from INAIL coverage).

Employees can bring an action before the civil courts against their employers or other liable third parties for compensation for so-called 'differential damage' (ie, any portion of damage not covered by INAIL).

According to Section 10 of Presidential Decree 1124 of 30 June 1965, employees can bring a civil action for compensation for differential damage against employers in the event of:

  • a breach of health and safety rules at work; and
  • a criminal conviction against their employer.

With Judgment 118/1986, the Constitutional Court established that employees can bring civil actions against employers even if the criminal action against them is dismissed. In such cases, the civil action must be brought within three years from the issue of the criminal decision.

Assessing differential damages

Compensation paid by INAIL covers only the following damages (non-pecuniary and pecuniary, respectively):

  • personal injury (including compensation for temporary or permanent incapacity); and
  • reduced work or earning capacity (which is compensated only in the event of a 16% reduced work capacity).

In recent years, there have been conflicting decisions regarding the amount of differential damage that an employee can claim. In fact, the Supreme Court has maintained that:

  • compensation paid by INAIL must be deducted from damages claims regardless of whether INAIL's compensation includes pecuniary or non-pecuniary damages;
  • only specific types of damage of the same nature as those paid by INAIL can be deducted from compensation claims.

Section 1(1126) of Law 145/2018 ruled that the second criteria above should no longer apply.

Scholars had strongly criticised Law 145/2018 on the basis that employees would not be duly protected in the event of an accident at work. For example:

  • before Law 145/2018 came into force, an injured party who had suffered personal injuries amounting to €50,000 and had received compensation of €50,000 from INAIL (including €30,000 in personal injury compensation and €20,000 for reduced work capacity) could claim an additional €20,000 in differential personal injury compensation from their employer; and
  • after Law 145/2018 came into force, the same injured party could no longer claim differential personal injury compensation after having received €50,000 from INAIL.

In view of said criticism, the provisions introduced by Law 145/2018 were cancelled only six months after their introduction by Section 3sexies of Law 58/2019.

Impact on insurers

Given the cancellation of said provisions, the criteria that the courts should follow to quantify differential damages remain unclear. This is relevant for third-party liability insurers exposed to indemnification claims arising from INAIL's recourse actions.

Further elements of uncertainty stem from the fact that Law 58/2019 did not cancel the amendments made by Law 145/2018 to Section 11(3) of Presidential Decree 1124/1965.

According to Section 11(3), in the case of a recourse action by INAIL against an employer, the courts can – at their sole discretion – reduce the quantum of differential damages, taking into account:

  • the employer's conduct before and after the workplace accident; and
  • the adoption of measures to improve health and safety at work.

In light of the above, the case-by-case analysis of individual damages awarded by INAIL continues to be important to ensure that requests for compensation for differential damages do not result in the duplication of sums already paid to the injured party. In fact, no duplication should be allowed in the settlement of damages, as evidenced by a number of recent rulings on compensation for personal injuries.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.