Lyondell Chemical has sought court approval of a settlement agreement to resolve multiple environmental claims and liabilities asserted by the U.S. and various state governments.

In court papers filed late on Tuesday, Lyondell said the accord will result in allowed unsecured claims of $1.18 billion for the benefit of the federal and state government agencies. Lyondell said it will also contribute $108.4 million to fund an environmental custodial trust and pay $61.6 million to the U.S. and California government entities to settle the allegations regarding the injunctive obligations.

Government agencies asserted various environmental claims and liabilities totaling about $5.5 billion, Lyondell said. The agencies also asserted a significant number of additional unliquidated claims for unspecified amounts.

"Taken together, these environmental claims represent one of the largest, if not the largest, groupings of unsecured claims asserted in these bankruptcy cases and, in the absence of settlement, the debtors (Lyondell) might have found it necessary to engage in an estimation process to fix those claims in order to confirm a plan of reorganization," court papers said.

Lyondell filed for bankruptcy in January 2009 amid a sudden cash crisis under the weight of billions of dollars of debt and a recession-driven decline in global petrochemical demand. The company filed a restructuring plan earlier this month, rejecting a takeover bid from India's Reliance Industries in favor of commitments from investors including Apollo Management LP and Access Industries.