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.