A recent 3rd U.S. Circuit Court of Appeals ruling in an asbestos injury case against St. Paul Travelers could potentially expose the carrier to over $1 billion in claims, a lawyer in the case contends.

Washington attorney David Killalea–representing the insulation firm of ACandS, which went bankrupt under a mountain of asbestos claims–called the ruling a “very important victory” for his client against the insurer.

The ruling by a three-judge panel of the court in Philadelphia–which included U.S. Supreme Court nominee Samuel Alito–voided a 2003 arbitration that went against ACandS, which had been upheld by the U.S. District Court in Philadelphia.

The insurer has argued that all operations should be treated as one occurrence with a $1 million per occurrence limit, while ACandS argued that each claim should be a separate occurrence. The operations policy has no aggregate cap.

The insurer, in a statement, said it would continue to litigate the case. According to Mr. Killalea, their only avenue now is an appeal to the U.S. Supreme Court.

St. Paul Travelers also said it was analyzing the decision for its impact on its previously announced review of its asbestos reserves. The company said it will discuss the matter on Feb. 2.

Before the arbitration was completed, ACandS had settled $2.6 billion worth of asbestos claims. The policies at issue in the case were issued by Travelers between 1976 and 1979, well before the insurer's 2003 merger with St. Paul.

In sending the case back to the District Court, the 3rd Circuit said that by allowing the case to go to arbitration, the lower court had violated the automatic stay provisions in bankruptcy law. It noted prior findings that the automatic stay is the most important protection afforded to debtors under bankruptcy law and found that the arbitration diminished the estate's value.

Analysts seemed to shrug off the impact of the ruling. Citigroup said it was maintaining a buy rating and that ACandS was seeking about $1.3 billion pretax or $1.20 per share after tax–a figure that “would still be contained within our estimate of a single quarter's run rate earnings.”

Alain Karaoglan, an analyst with Deutsche Bank, noted that while losing a decision is not good, the case is continuing. He said Deutsche Bank, which holds stock in the insurer, still feels it is “the most attractive large-cap name in the insurance sector.”

Paul Newsome, an analyst with A.G. Edwards & Sons, said there were a number of unknown factors–including how much of a reserve the insurer had for the case and whether it would be increased.

Special Reports /

St. Paul Travelers Loses $1B-Plus Asbestos Decision

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