A federal appeals court in Chicago has given McDonnell Douglas Corp. a major piece of good news by holding that the company is not liable for hundreds of millions of dollars in punitive damages stemming from the nation's worst aviation accident.

Assuming Monday's ruling stands, it could speed settlement in the legal tangle that followed the crash on May 25, 1979, of American Airlines Flight 191 -- a McDonnell Doughlas DC10 -- at Chicago's O'Hare International Airport. A total of 273 persons died, and their survivors still are entitled to compensatory damages.

Punitive damages normally are assessed against the treasuries of the companies involved, are intended to punish and usually are not covered by insurance. Winning punitive-damage cases usually requires proving gross negligence, and some of the best minds in aviation crash litigation have been working diligenly on the case since the day of the crash.

Compensatory damages, usually covered by insurance, are awarded to compensate survivors for their loss. The amount usually is determined in the first few trials where juries consisder a number of factors, such as the age of the victim, earning power and number of dependents. Once a trend is established, most of the remaining cases are settled out of court.

No one was willing to estimate yesterday what the total insurance bill from Flight 191 will be, but earlier estimates have ranged from $100 million to $200 million for the more than 115 lawsuits that have been consolidated in U.S. District Court in Chicago. The flight carried a large number of professional people at the peak of their earning years, whose families thus would be entitled to considerably more than the survivors of a retired senior citizen, for example.

The good news for McDonnell Doughlas is that it is restored to equal legal footing with American Airlines. A lower court had held earlier that American Airlines was not subject to punitive damages while McDonnell Douglas was. That is because American's corporate headquarters at the time of the accident was in New York, where state law prohibits punitive damages, while McDonnell Douglas' headquarters is in St. Louis, where Missouri law permits punitive damages. In the absence of a federal statute, state law applies.

That interpretation was particularly ironic because both the Federal Aviation Administration and National Transportation Safety Board have pointed to faulty American Airlines maintenance procedures as the primary cause of the accident.

The U.S. 7th Circuit Court of Appeals held that because the accident occurred in Illinois, that state's law applied. Attorneys for various plaintiff groups were uncertain yesterday whether the ruling will be appealed, but the best guess of all parties involved is that it will not be.

American and McDonnell Douglas already have agreed to pay compensation, although they have not agreed how to split the bill. That, too, could be the subject of a trial, but attorneys for both sides said yesterday that the removal, of the threat of punitive damages for McDonnell Douglas will make a negotiated settlement easier to reach.

"We are glad to have the court uphold our understanding on the law," a McDonnell Douglas statement said. American Airlines had no official comment.