Why is the IAG share price on a high today?

Posted: 11 October 2021 2:19 pm
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Shares in the insurer are up just 10% in the last 12 months.

While financial stocks are under pressure amid a decline on Wall Street last week, shares in Insurance Australia Group (ASX: IAG) are bucking the trend to be among the top performers on the ASX on Monday. At the time of writing, the stock was up 4.4% at $5.42.

What is boosting the IAG stock price?

Investors are cheering the IAG stock after a significant legal win for general insurers that some believe could help them save billions of dollars in claims.

Insurance companies on Friday won a second round of a court fight over pandemic-related claims for businesses.

These companies have received claims from hundreds of businesses over the past year for business interruption because of the coronavirus pandemic. However, insurers say these policies were never intended to cover pandemics.

Among the major insurers, Suncorp, QBE and IAG all had disputed business interruption claims. IAG alone set aside more than $1 billion for the matter, while Suncorp has set aside $211 million and QBE $180 million.

Business owners had a win earlier this year after the NSW Supreme Court found a drafting error in the policies across the industry that opened the door to pandemic claims. The case found that references to the Quarantine Act, which was abolished and replaced with the Biosecurity Act, did not block pandemic-related claims.

However, in what was seen as the next test case for the claims, IAG vs Meridian Travel, Federal Court Justice Jayne Jagot found it was difficult to prove the argument for business interruption because of the coronavirus pandemic.

Appeal likely

Justice Jagot said, "There are substantial issues as to whether Meridian Travel can prove that its business was interrupted or interfered with as a result of an outbreak of a human infectious or contagious disease occurring within a 20-kilometre radius of the situation."

However, she left the door open for an insured business to claim for losses caused by the pandemic.

The Federal Court last month heard 9 cases from small businesses seeking claims for pandemic-induced losses under business interruption insurance policies in a legal battle that could affect more than $1 billion in potential payouts.

However, the ruling is not the end of the matter, with lawyers acting for business owners set to challenge the ruling through an appeal. The Federal Court has set aside time for the matter next month.

The class actions against the insurance companies, which are being backed by ASX-listed litigation funder Omni Bridgeway, will be before court again in February next year.

But for now, investors in insurance companies are savouring the win, with the sentiment being reflected in the share prices, primarily for IAG.

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