New York City and a group of contractors have agreed to pay up to $657 million to more than 10,000 workers who alleged that rescue and cleanup efforts around the World Trade Center made them sick.

A worker at Ground Zero on October 9, 2001. More than 10,000 workers alleged they were sickened. Associated Press

The settlement, announced Thursday night, sets up a system to compensate thousands of firefighters, police officers, contractors and volunteers based on the severity of their medical problems. "This settlement is a fair and reasonable resolution to a complex set of circumstances," New York Mayor Michael Bloomberg said in a statement.

The awards would range from $3,250 to seven figure sums. By agreeing to the settlement, the plaintiffs release the city and its contractors from any future damage claims.

Mr. Bloomberg commissioned a task force in 2006 to develop a coordinated plan for responding to the massive health problems associated with the Sept. 11, 2001, terrorist attacks.

That panel projected roughly 43,000 people might ultimately seek treatment for exposure to the dust and smoke that permeated lower Manhattan after the towers toppled.

The settlement, coming just months before the first trials were to begin, comes after years of contentious arguing in court. Many of the sick workers have accused the city of failing to respond quickly and humanely to what were in many cases devastating health problems, a charge the Bloomberg administration has rejected.

In 2008, the city sparked outrage when it argued a third of the Ground Zero workers who sued the city had minor health problems, such as runny noses or trouble sleeping.

"This agreement enables workers and volunteers claiming injury from the WTC site operations to obtain compensation commensurate with the nature of their injuries and the strength of their claims, while offering added protection against possible future illness," said Christine LaSala, president of the WTC Captive Insurance Company, formed in 2004 to insure the city and nearly 140 other parties against claims connected to 9/11.

The settlement will cost the federally funded WTC Captive Insurance Company $575 million if 95% of the plaintiffs participate, and would rise to as much as $657 million if more plaintiffs opt-in.

WTC Captive was funded with $1 billion from the Federal Emergency Management Agency.

The plaintiffs in these lawsuits will have 90 days to review the terms of the settlement. They will be required to submit proof that they participated in the rescue, recovery and cleanup efforts at ground zero, in addition to detailed medical documentation of their illnesses and injuries.

Attorneys for the plaintiffs and WTC Captive will select an independent third party expert to review each claim in an attempt to protect against fraud or errors.

The judge in the case must still approve the settlement. A hearing in the matter is scheduled for Friday.

The settlement came amid negotiations between developer Larry Silverstein and the Port Authority of New York and New Jersey, who are trying to resolve an impasse over the redevelopment of the World Trade Center site. An arbitration panel in January gave the parties until Friday to come to an accord or allow the panel to resolve it.

Officials on both sides said they were making progress in reaching an agreement that would put the massive reconstruction project back on track, but serious differences remain, mainly over how to pay for the new complex.

Write to Michael Howard Saul at