A suit filed by a 20-year-old Virginia man who lost an arm in an accident while repairing the roof of the Watergate office building two years ago was settled out of court yesterday after the defendants agreed to pay him what could amount to more than $1 million over the course of his life.

The settlement stems from a 1980 accident in which the plaintiff, William Stewart, was using a rope to pull off pieces of the roof surface of the building at 2600 Virginia Ave. NW. The rope became entangled with the blades of a fan in a cooling tower on the roof and also wound around Stewart's left arm, severing it.

Stewart filed suit, maintaining that the Watergate Management Corp. and Washington Gas Light Co., which owns and operates the cooling towers, were responsible for seeing that the fans were turned off while the roof work was going on.

Under the terms of the settlement, agreed upon just before a scheduled D.C. Superior Court hearing on the lawsuit was to begin, the Watergate and Washington Gas will pay Stewart an initial award of $260,000, as well as $14,400 each year for the rest of his life.

Stewart will also receive additional lump-sum payments of $10,000 after five years, $20,000 after 10 years, $40,000 after 15 years and $60,000 after 20 years, according to Stewart's attorney, Wayne Mansulla. All of Stewart's future medical expenses will be paid for by workers' compensation, Mansulla said. If Stewart lives until the age of 72, he stands to collect $1.1 million.

Ronald Guziak, lawyer for the Watergate management, said after the settlement that his clients "still deny any negligence" and feel "legally no liability" in what he called "a tragic accident." Guziak said, however, that rather than trying to put a price tag on a man's arm before a D.C. jury, they thought it best to settle out of court.

A spokesman for Washington Gas said the company "had nothing to do with negligence" in the accident and that its share of the payments to Stewart is less than 3 percent of the total.

The accident occurred as Stewart, then a resident of Langley, was preparing to enter Montgomery College, to which he had won a two-year scholarship. Stewart was a 1980 Virginia state AAA high school wrestling champion. He was planning to enter the field of law enforcement, his attorney said.

Stewart, who now lives in Annandale, said of the award, "I guess it's kind of relieving. It's the two years of just sitting around. . . . I couldn't really get a good job."