The agency is one of the most prominent issuers in the $2.9 trillion municipal market. Its finances have been strained by the costly rebuilding of the World Trade Center complex.
The lawsuit centers on 7 World Trade Center, which was built just north of the World Trade Center site, above an existing Con Edison base station, the appeals court decision said.
Consolidated Edison Inc and its insurers had sued the Port Authority, owner of 7 World Trade Center, after the building collapsed in a maelstrom of fire on the afternoon of the September 11, 2001, attacks.
The order by a three-judge panel of the 2nd U.S. Circuit Court of Appeals partially overturned a decision by Manhattan federal court Judge Alvin Hellerstein, who has been handling much of the litigation following the deadly air attacks.
Hellerstein had granted summary judgment to the Port Authority, finding that under the terms of its lease to Con Edison, it could not be held responsible for the tower's speedy destruction.
"The district court interpreted the lease to preclude Con Edison from maintaining an action against Port Authority based on Port Authority's negligence in connection with construction or maintenance of 7WTC," Circuit Judges Roger Miner, Pierre Leval and Richard Wesley wrote. "This was error."
In a September 2002 lawsuit, Con Edison claimed the Port Authority had improperly allowed its tenants to place diesel fuel tanks used for back-up power, and that the burning tanks had accelerated the collapse of the building late in the afternoon of September 11.
Con Edison also claimed in its lawsuit that the Port Authority could be found negligent in the tower's design and construction.
"In short, we conclude it was error to read the parties' lease as precluding claims by Con Edison against Port Authority premised on Port Authority's negligence in connection with the construction of 7WTC or the installation of the diesel fuel tanks in the building," the appeals court order said.
But the order upholds the lower court judge on the more general negligence claim, saying Con Edison had not properly notified the Port Authority of its intention to sue on those grounds.
"Claims of negligent design and construction of 7WTC, of which Port Authority was not reasonably notified by the June 2002 Notice, must be dismissed," the decision said.
In 2006, the same address was the scene of a newly completed 42-story tower, the first new building in the reconstruction of the World Trade Center complex.