You should contact the attorney who drafted the settlement agreement, but it is almost a certainty that you will not be able to deduct the payment from your federal income tax return.
Had the beneficiary prevailed in court, the payment to the beneficiary would have been considered funds you were not entitled to in the first place. Since you entered into a settlement agreement, you essentially admitted that you were not entitled to the funds you paid to the beneficiary. Either way, there would be no personal income tax deduction for the amount of the payment.
Again, consult the attorney who drafted the settlement agreement.
