In Italy, 22 January 2026 marked a turning point for the public sector. With the entry into force of Law No. 1/2026, the framework governing loss of revenue has been radically reshaped. The long-standing “fear of signing” may now be a thing of the past, but the reform has also sparked intense debate over whether all forms of public waste and mismanagement will still be effectively punishable in the future.
- New boundaries for “gross negligence”
The new law provisions have introduced new and narrower criteria for defining gross negligence. Going forward, the risk of liability will arise only in cases of manifest violations or clear misrepresentation of the facts.
A further protective shield has also been introduced for public employees: officers may no longer be held liable if they can show that they acted in reliance on opinions issued by competent authorities or on prevailing case law.
Importantly, this provision will have retroactive effect, meaning that it will also apply to proceedings already underway. As a result, the reform is likely to empty the chambers of the Italian Court of Auditors of countless pending cases concerning administrative liability for loss of revenue.
- New criteria for quantifying damages
The most significant innovation, however, is the introduction of a kind of “liability cap”: i.e., a maximum limit on the award of damages (except in cases of willful misconduct or unlawful enrichment).
More specifically, the Court is now required to reduce the amount charged according to clear criteria:
- a public employee may not be ordered to pay more than 30% of the total loss caused;
- in any event, the penalty may not exceed twice the employee’s gross annual salary;
- a new standard of foreseeability has been introduced: the risk of administrative liability, once potentially unlimited, is now transformed into something quantifiable — a major development for the insurance market.
- Mandatory insurance for gross negligence
Until now, “gross negligence” insurance was essentially a matter of personal caution. Under the new legislation, however, it becomes mandatory for all those entrusted with managing public resources.
Unsurprisingly, the introduction of such compulsory insurance is opening the door to a vast new market for insurers. Demand for financial liability coverage is expected to surge, even though it is still unclear who will ultimately bear the cost of the premium and how existing policies will be handled.
- Insurers in court: mandatory joinder
From a procedural standpoint, the real revolution is that insurance companies will no longer remain outside proceedings concerning liability for loss of revenue, intervening only after the conclusion of the case or once reimbursement has been made. Instead, they will become necessary parties to proceedings before the Court of Auditors.
It is even possible that public prosecutors themselves will bring insurers before the Court.
This will inevitably result in much higher defense costs for insurers, with predictable repercussions on insurance premiums.
It should also be pointed out that insurers will need to rewrite existing policies in order to bring them into line with the new legislation, recalibrate policy limits — previously linked to potentially unlimited losses — so that they reflect policyholders’ salaries, and revisit their underwriting models, given that the legal reform has significantly reduced the risk profile of public employees.
In brief, while Law No. 1/2026 is likely to protect diligent public employees, it also appears to make the recovery of dissipated public resources more difficult.