Toyota said it will take a one-time pre-tax charge of $1.1 billion to cover the estimated costs of the settlement, Reuters reported.
About 16 million Toyota, Lexus and Scion vehicles sold in the United States in model years 1998 to 2010 are covered by the action. Thirty nameplates are affected, including the top-selling Toyota Camry midsize sedan and Corolla compact car.
Toyota, the No. 3 automaker in the U.S. market, admitted no fault in proposing the settlement, one of the largest in the automotive sector. Investors snapped up shares of Toyota and its stock rose 2 percent in early trading, Reuters reported.
"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."
Hagens Berman, the law firm representing Toyota owners who brought the case in 2010, said in a press release the settlement was valued between $1.2 billion and $1.4 billion. In a plaintiff memo filed in court, the plaintiffs’ firm estimated that the total package was "conservatively valued" at more than $1.3 billion.
The deal amounts to "a landmark, if not a record, settlement in automobile defect class action litigation in the United States," said the plaintiff memo. Toyota described the settlement as a "significant step forward" for the Japanese automaker, which has seen its image take a hit from the controversy.
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 about 3.25 million vehicles, plaintiff attorneys said.
The terms include a $250 million fund for former Toyota owners who sold vehicles at reduced prices because of bad publicity, and a separate $250 million fund for owners not eligible for the brake override system.
Plaintiff attorneys are slated to receive up to $200 million in fees and $27 million in costs, according to court documents.
Toyota spokesman Mike Michels told USA Today the company is pleased that the settlement establishes that the vast bulk of unintended acceleration cases were due to floor mats that slid underneath gas pedals and got trapped, not defects in the engine computers. A jammed floor mat won't necessarily make the car go faster, but it can make it hard to stop because it keeps moving even when a foot is off the accelerator.
"We felt we achieved our objective, to defend the safety of the product," Michels said. The settlement is "a business decision and we turn the page on a lot of this."
Toyota says it is setting aside $1.1 billion for its costs to settle the lawsuits. Steve Berman, the co-lead counsel for plaintiffs in the cases consolidated in Orange County, Calif., said in a statement that he believes the value of the settlement is between $1.2 billion and $1.4 billion.
"After two years of intense work, including deposing hundreds of engineers, poring over thousands of documents and examining millions of lines of software code, we are pleased that Toyota has agreed to settlement that was both extraordinarily hard fought and is exceptionally far reaching," Berman says. The settlement is subject to approval expected Friday before U.S. District Court Judge James Seina.