A federal appeals court overturned a lower court ruling that held a CNA Financial Corp. unit is not necessarily obligated to defend numerous asbestos lawsuits, but said a lower court must decide which of the cases it must defend.

CNA unit Continental Insurance Co. originally insured a company known as McQuay Inc., which after a series of corporate transactions, eventually become Minneapolis-based Daikin Applied Americas Inc.

The issue in the ruling by the 8th U.S. Circuit Court of Appeals in St. Louis in Continental Insurance Co. v. Daikin Applied Americas Inc. was the extent to which Continental was obligated to defend cases in which its original policyholder became enmeshed with numerous other entities, some of which may have Daikin asbestos-related liabilities.

“Since 1998, numerous personal-injury asbestos lawsuits have been filed around the country naming as a defendant one or more of the Subsequent Entities.

“Daikin Applied eventually tendered over one hundred of these underlying lawsuits to Continental, seeking a defense under the Continental Policies on the theory that the named Subsequent Entity in each lawsuit arguably was sued on account of McQuay-Perfex’s insured asbestos-related labilities,” the ruling said, referring to one of Daikin’s earlier names.

“Continental accepted tender but fully reserved its rights to disclaim later any duty to defend or indemnify,” the ruling said.

Continental filed suit in U.S. District Court in St. Paul seeking a declaratory judgment it has a duty to defend only the underlying lawsuits that expressly alleged in some manner they had been sued on account of McQuay-Perfex’s liabilities, the ruling said.

The district court ruled in Continental’s favor, but was overturned by a unanimous, three-judge appeals court panel.

“While we reject Continental’s position adopted by the district court regarding the scope of Continental’s duty to defend, we do not adopt Daikin Applied’s position either,” the ruling said, however. 

“Daikin Applied proposed a declaration essentially pronouncing that Continental owes it a duty to defend all of the underlying lawsuits in dispute,” it said. 

“To trigger the insurer’s duty to defend, the allegations must at least ‘implicate’ the named defendant in its insured capacity,” the ruling said. “Daikin Applied’s position erroneously lowers its threshold burden to trigger Continental’s duty to defend. Thus, we do not adopt it,” it said.

“Because of its declaration, the district court did not analyze each underlying lawsuit to determine whether the complaint named a Subsequent Entity arguably on account of McQuay-Perfex’s liabilities in light of the allegations therein or, if not, whether extrinsic facts proffered Daikin Applied and known to Continental about that case clearly establish this.

“Thus, the district court has not yet done the case-specific analysis required to resolve a duty-to-defend dispute,” the three-judge appeals board said, in remanding the case for further proceedings.

Attorneys in the case did not respond to requests for comment.