Usually depends on whether the payments are for medical, pain and suffering (Usually not taxable) or for punitive damages to punish the guilty party (usually taxable).

There is a tax concept called the origin of the claim. This tracks the taxabiliy of the settlement back to the purpose for the awarded damages. Awards for physical injury are generally tax exempt. Awards for punitive damages are, however, taxable… as are awards for loss of pay.

Here is an IRS document which summarizes the taxability of various settlements:

California conforms to the Federal code on these issues. Go to the Franchise Tax Board link below and press Ctrl-F and search for Punitive…

Whom ever pays you the settlement will file the 1099. You would include as income any amount that is reimbursement for amounts that you have taken a deduction for in a prior year. The rest should be without tax liability.