Why is this system stable?
You are actually encircling the point -1 twice. Your Nyquist plot overlaps two encirclements. If you try to apply the Nyquist criterion to

$$L(s)=\frac{5(s^2+1.4+1)}{(s-1)(s-0.99)}$$

you will see that what looked like a single encirclement was actually the convergence of two trajectories. Therefore, N=-2, and Z=0 as it was meant to be.