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According to the IRS - to determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces.
Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. However, interest income received as a result of life insurance proceeds may be taxable.
Also - you do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).
So far the settlement from an insurance company replaces non taxable items - and therefore should not be included into your income.
Only if part of that settlement includes interest income received as a result of life insurance proceeds or any other taxable items - that part might be taxable to you and your siblings.
Please see fro reference IRS publication 525 - http://www.irs.gov/pub/irs-pdf/p525.pdf
for Court awards and damages - see page 31
for life insurance proceeds - see page 21
for compensatory damages for personal physical injury - see page 19.
Please provide that information to your attorney for consideration.
Let me know if you need any help.
Be sure to ask for clarification if needed.