Toyota was taken to court by owners of its cars who claimed there was an electronic fault in the acceleration system. Toyota said any accelerator problems were caused by driver error, pedals sticking or badly fitted mats. The settlement means Toyota does not admit blame and avoids a lengthy trial.
The deal includes payments to customers as well as installation of a brake override system that prevents unintentional acceleration in about 3.25m vehicles. The terms include a $250m fund for former Toyota owners who sold vehicles at reduced prices because of adverse publicity, and a separate $250m fund for owners not eligible for the brake override system. Lawyers will receive $200m in fees and $27m in costs.
Steve Berman, representing the car owners, said the settlement is the largest in American history involving car defects.
Toyota has recalled more than 14m vehicles worldwide due to acceleration problems in several models and brake defects with the Prius hybrid.
"This was a difficult decision, especially since reliable scientific evidence and multiple independent evaluations have confirmed the safety of Toyota's electronic throttle control systems," Christopher Reynolds, general counsel for Toyota Motor Sales, USA, said in a statement.
"However, we concluded that turning the page on this legacy legal issue through the positive steps we are taking is in the best interests of the company, our employees, our dealers and, most of all, our customers."
The biggest safety crisis in Toyota's history started in August 2009 when an off-duty California highway patrol officer Mark Saylor and three members of his family were killed in a Lexus ES 350 that crashed at a high speed.
A separate lawsuit over the death of the Saylor family was settled out-of-court. A handful of wrongful death and personal injury cases are still pending, but it is understood that the vast majority of the litigation over the issue will be completed if the proposed settlement is approved.
Within a half year of the Saylor family crash, Toyota president Akio Toyoda and other company executives were questioned in a high-profile US congressional hearing. Toyoda made a public apology but the company maintained all along that its electronic throttle control system was not at fault. It reiterated that on Wednesday.
A study by US safety regulator the National Highway Traffic Safety Administration and Nasa found no link between the reports of unintended acceleration and Toyota's electronic throttle control system.
The settlement is "a landmark, if not a record, settlement in automobile defect class action litigation in the United States," according to a memo filed in court by the plaintiff's lawyer. Hag ens Berman, the law firm representing Toyota owners who brought the lawsuit in 2010, issued a statement saying that the settlement was valued between $1.2bn and $1.4bn.
The settlement, which must be approved by a California federal judge, includes direct payments to customers as well as the installation of a brake override system in more than 2.7m vehicles, according to the settlement agreement filed in court.
The terms include a $250m fund for former Toyota owners who sold vehicles at reduced prices and a separate $250m fund for owners not eligible for the brake override system.
Lawyers for the plaintiffs are to receive up to $200m in fees and $27m in costs, according to court documents.
Richard Cupp, a professor at Pepperdine University School of Law, said the settlement was large for the automotive sector but was dwarfed by other litigation involving economic loss claims. State cases against the tobacco industry, for instance, amounted to more than $200bn.
"That could mean that lawsuits like these could become increasingly common, even where there is not provable physical injury on large scale," Cupp said.
guardian.co.uk © Guardian News and Media Limited 2010