Before a jury heard a lawsuit filed by the family of Maria Constanza Piamba Cortes, U.S. District Judge Stanley Marcus ruled that the jet's crew was guilty of willful misconduct in the crash that killed 159 people.
That meant the jury only had to decide how much the family should be awarded and removed the question of the crash's cause from consideration by future juries.
But the U.S. 11th Circuit Court of Appeals in Atlanta said the jury, and not the judge, was responsible for deciding fault in the case before issuing an award.
Ms. Piamba's case, which was heard in Miami, will be returned to a jury, which must decide whether the pilots were guilty of willful misconduct.
The award to Ms. Piamba's family was the first to be decided by a jury.
Tuesday's decision could affect several other jury awards, which have been as high as $2.4 million. The Fort Worth, Texas, airline has settled dozens of other cases.
American maintains that the cockpit's crew never took steps that they knew would have deadly consequences, said Chris Chiames, an American Airlines spokesman.
The plane, en route from Miami to Cali, crashed when it strayed from the planned path and flew into a mountain. Colombian investigators said the accident followed a series of mishaps in the cockpit and blamed the Boeing 747's crew.
Pilots entered the wrong codes in a flight computer, which took the plane off track, then they failed to notice they were off course as they descended.