NEW YORK—WTC Captive Insurance Co. last week reached a multimillion-dollar settlement with more than 10,000 workers claiming illness or injury stemming from the rescue and recovery efforts after the Sept. 11, 2001, World Trade Center terror attack in New York.

The settlement—which could be as much as $675 million—came just months before the first cases were scheduled to go to trial and ended a six-year legal battle that plaintiff attorneys said was “oftentimes highly contentious.”

The agreement, which a federal judge still must approve, provides a system to pay compensation to about 10,000 plaintiffs—including police officers, firefighters and construction workers—according to the severity of their illness or injury and the level of their exposure to contaminants at the World Trade Center, officials said during a news conference last week.

Payments will be made by WTC Captive, a federally financed insurance fund established in 2004 with a $1 billion grant to provide otherwise unavailable liability coverage to the city of New York and about 100 contractors. At least 95% of the plaintiffs must accept the terms within 90 days for the agreement to be binding, in which case the payments would total $575 million. If all plaintiffs accept the terms, the settlement will total $675 million, officials said.

Lawyers and officials said they were “confident” the threshold will be met.

“This is a good settlement, and we feel it's the best agreement for our clients,” said Marc J. Bern, senior partner with Worby, Groner, Edelman & Napoli, Bern L.L.P., in New York, which represents more than 9,000 litigants. “We are very gratified that the men and women who performed their duties without consideration of the health implications will finally receive just compensation.”

However, Mr. Bern conceded that plaintiffs' decision will be a complicated one. “It's still early, but so far the feedback has been good. The clients are very relieved that an end is in sight,” he said, adding that he is “urging plaintiffs” to agree to the settlement terms.

To recover under the settlement, workers must submit proof that he or she was present and participated in the recovery or cleanup efforts, as documented by medical history. An independent third-party claims administrator—chosen by lawyers in the case—will be announced in several weeks, officials said.

The settlement also funds special insurance for any plaintiff who later contracts certain kinds of cancer. Christine LaSala, president of WTC captive, said the policy is a “central element” of the resolution and will be funded by WTC Captive. MetLife Inc. will underwrite the policy with limits up to $100,000, she said.

While the settlement covers New York and its contractors, it does not cover other private or public entities named in related lawsuits, including the Port Authority of New York and New Jersey.

The settlement would cancel or postpone trials tentatively set to start in May, said David E. Worby, senior partner with the law firm in White Plains, N.Y. However, “if we do not get the required 95% approval, we're going to trial.”

At a court hearing Friday, U.S. District Judge Alvin Hellerstein—who has been overseeing the litigation—set a fairness hearing for late this week to allow plaintiffs to comment on the settlement.

WTC Captive came under fire in 2006 when lawmakers accused it of mishandling its funding. In July 2007, injured workers sued WTC captive seeking millions of dollars in damages. Attorneys for the workers argued that the captive's $1 billion in funding should be used for medical treatment and compensation of workers injured by their participation in the cleanup. WTC Captive had argued that its mandate required it to defend its insureds—the city and its contractors—against potentially improper claims.

Mr. Worby said WTC Captive “never once paid a claim for any of our clients. The city refused to pay claims because they argued they had immunity from damages in cases involving a national emergency,” he said. “That is why reaching this agreement is such a massive accomplishment for all of us.”

Ms. LaSala acknowledged it has “been costly to defend litigation” and estimated that WTC Captive had paid more than $200 million in legal expenses. She said, “We are very hopeful to have the overall process completed within a year.”