WEST WARWICK — The Town Council last night unanimously approved a settlement agreement that will dismiss the $1.1-million Caruolo lawsuit the School Committee filed against the town earlier this year.

Under the deal, the lawsuit will be dismissed, with prejudice, once the town pays three outstanding debts the School Department owes totaling $1,162,343. The money, officials said, will come from the town’s unreserved balance, or “rainy day” fund. The council plans to vote on the withdrawal from the fund at its meeting on Tuesday.

Lawyers from both sides will be in Kent County Superior Court today to inform Judge Edwin Gale of the agreement. Gale urged both parties to continue negotiations when they met in his courtroom earlier this month.

Council members said that the settlement, which, among other things, encourages open dialogue between the two bodies and requires the School Committee to hire a labor attorney to negotiate contracts, is the first step toward solving a systematic problem of overspending in government offices.

The School Committee unanimously approved the settlement earlier this week.

tbuford@projo.com