Why the Suncorp (ASX:SUN) share price is on watch today

The Suncorp Group Ltd (ASX:SUN) share price will be on watch today after the Federal Court ruled in its favour…

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The Suncorp Group Ltd (ASX: SUN) share price will be on watch on Monday after the release of an update on its business interruption insurance.

What did Suncorp announce?

This morning Suncorp announced that the Federal Court of Australia made its ruling on Friday in relation to a COVID-19 business interruption insurance claim from a customer in Victoria.

The customer commenced proceedings following the decline of a claim under its business interruption policy for COVID-19 pandemic related losses. A discrete question concerning the proper construction of the exclusion clause was referred to the Federal Court.

The exclusion clause in the particular Suncorp policy excluded cover for “any claim that is directly or indirectly caused by or arises from, or is in consequence of or contributed by highly pathogenic Avian influenza or any biosecurity emergency or human biosecurity emergency declared under the Biosecurity Act 2015 (Cth), its subsequent amendments or successor, irrespective of whether discovered at the premises of the breakout or elsewhere.”

What happened in the Federal Court?

According to the release, the Court’s interpretation is consistent with Suncorp’s position that cover for loss arising from a pandemic is a high risk for an insurer which would normally be excluded.

It found that the exclusion clause will operate where a human biosecurity emergency has been declared to exist, and a business has been shut down by government order as a response to that emergency, whether Federal, State or Local.

The Court also held the exclusion would apply even where the connection between the emergency and the claim was remote and was only a cause of the claim.

In light of this favourable outcome, the insurance giant believes that its overall reserving continues to be adequate.

Though, it notes that valuations do not take into account the potential for further COVID-19 lockdowns, as well as any unexpected outcomes from future litigation including any industry test cases.

Suncorp’s CEO, Steve Johnston, commented: “Suncorp is committed to working with Government, industry and the broader community to explore alternative frameworks to addressing pandemic risks.”

“We recognise these are challenging times for small business and we have put in place a range of measures to support them through this period. Unfortunately, pandemics are an uninsurable risk and premiums have not been paid to cover an event of the scale of COVID-19,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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