Judge Thomas Ambro of the U.S. Court of Appeals for the Third Circuit.

The U.S. Court of Appeals for the Third Circuit on Tuesday said that insurers of bankrupt mining company W.R. Grace & Co. could be on the hook for asbestos exposure claims, leaving the issue to a bankruptcy judge to decide.

The precedential ruling from a three-member panel of the appeals court revived claims from workers suffering from asbestos-related illnesses, after U.S. Bankruptcy Judge Kevin Gross of the District of Delaware held they were barred by an injunction that channels claims against third parties to a trust.

While the Third Circuit agreed that insurers Continental Casualty Co. and Transportation Insurance Co. were protected by the terms of the channeling injunction, the judges said there remained a question of whether the claims against the insurers, referred to as CNA in the ruling, fit the statutory limitations of U.S. bankruptcy law.

“The proper inquiry is to review the law applicable to the claims being raised against the third party (and when necessary to interpret state law) to determine whether the third party's liability is wholly separate from the debtor's liability or instead depends on it,” Judge Thomas Ambro of the Third Circuit wrote in a 25-page opinion.

Daniel C. Cohn, a partner with Murtha Cullina who argued for the workers, declined to comment. Michael S. Giannotto, a Goodwin Procter partner representing the insurers, did not immediately respond to a call Wednesday seeking comment on the ruling.

The decision, however, gives a second shot to argue in Grace's Chapter 11 bankruptcy proceedings that the insurers are directly liable for the asbestos-related claims.

On direct appeal, they took the broad view that any misconduct by the insurers exposed CNA to liability. They seized specifically on a group of CNA policies that gave the insurers the right to inspect Grace's facility for asbestos mining and processing in Libby, Montana, arguing that CNA had violated its duty of care to educate and warn workers and their families about hazardous conditions from insufficient dust control at the plant.

CNA, on the other hand, criticized the workers' “per se attempts to hold it indirectly liable” for Grace's conduct. According to CNA, the policy gave the insurers the right—but not the obligation—to inspect the Montana facility and that all responsibility fell on the shoulders of the debtor, whose products had harmed its workers.

Though Ambro sided with CNA on the terms of the injunction, he rejected the statutory interpretations argue by both CNA and the workers, saying “the former is overly narrow and the latter overly broad.” And he directed Gross to review the case under the plain language of the relevant sections of the U.S. Bankruptcy Code.

The decision, the judge said, was supported by the purpose of bankruptcy law in the context of asbestos liability.

“The incentive for third parties, particularly insurers, to contribute to an asbestos personal injury trust is their diminished exposure to asbestos liability from the asbestos debtor's conduct or claims against it. Protecting these third parties from derivative exposure resolves lingering uncertainty about their liability and sustains the trust's ability to compensate current and future claimants,” he said.

According to a reliable source, CNA's potential liability could run in the hundreds of millions of dollars.

The case is captioned In re W.R. Grace & Co.