Here's why the IAG (ASX:IAG) share price is outperforming today

The pandemic forced many businesses to shut down for extended periods.

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Key points

  • IAG share price is outperforming today
  • Business interruptions rocketed during the pandemic
  • Full Court mostly agrees with prior ruling on insurers' BI liabilities

The Insurance Australia Group Ltd (ASX: IAG) share price is in the green today, up 0.4% to $4.84 per share.

While that's no huge leap, it comes as the S&P/ASX 200 Index (ASX: XJO) is under renewed pressure, currently down 0.9%.

So why is the IAG share price outperforming?

Business interruption court case appeal

This morning the ASX 200 insurance giant reported on the outcome of the second business interruption test case appeal.

The judgment from the Full Court of the Federal Court of Australia was handed down yesterday.

Investors are rewarding the IAG share price after the court "substantially agreed with the conclusions" reached by the Federal Court of Australia on 8 October 2021. That ruling came out in favour of insurers on most policy wording questions surrounding the coverage of business interruption, particularly relating to pandemic issues.

At the time, the Insurance Council of Australia stated that the insurance industry has "long maintained that pandemics are not intended to be covered under most business interruption policies."

In yesterday's judgement the Full Court did reverse two elements of the IAG v Meridian Travel case judgment. According to the release, it ruled that "JobKeeper payments are not to be taken into account in the assessment of loss, and interest payments are to be calculated on a different basis".

IAG said it will review the judgment to "determine whether to seek leave to appeal any aspect of the judgment". Parties in the case have 28 days to do so.

The insurance giant said there won't be any adjustment to its $1.22 billion provision for potential business interruption claims. It added that "as the legal position becomes more certain and claims experience emerges, IAG will refine the prediction of ultimate claim costs and adjust its provision accordingly".

IAG share price snapshot

The IAG share price has been a strong performer in 2022, up 8.7%. That compares to a year-to-date loss of 5.5% posted by the ASX 200.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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