NEW YORK—Factory Mutual Insurance Co. has agreed to pay $75 million to the United States Postal Service to settle a coverage dispute stemming from losses suffered at a downtown Manhattan post office resulting from the Sept. 11, 2001, terrorist attacks.

The Postal Service in June 2003 sued Johnston, R.I.-based Factory Mutual, which does business as FM Global, alleging breach of contract under a property insurance policy for failure to reimburse USPS for the repair, decontamination and restoration of the Church Street Station post office building, which was damaged in the World Trade Center attacks.

FM Global denied the allegations, the U.S. attorney for the Southern District of New York said in a statement.

The Postal Service sought to collect more than $172 million under the property policy, according to FM Global.

Under the terms of the settlement, approved Thursday in a Manhattan federal court, FM Global will pay $75 million to the Postal Service for insured losses. The sum includes payments made between 2001 and 2003 in excess of $26 million, according to FM Global.

Factory Mutual is “pleased” to have resolved the matter, a spokesman said.