A woman who filed suit against two Arlington Hospital pathologists complaining that she underwent a complete hysterectomy as the result of an incorrect diagnosis that she had a cancerous ovarian tumor has received a $250,000 out-of-court settlement, according to papers filed in Arlington Circuit Court.

Alexandra A. Sloan, 32, of Annandale had sought $10 million from Dr. Richard N. Palmer, who performed a biopsy on the tumor, and Dr. William D. Dolan, chief of pathology at the hospital, according to court papers. The hospital was was dropped as a defendant in the suit.

Dean E. Swartz, Sloan's attorney, said the suit against the physicians was dropped last week in exchange for the settlement.

According to court papers, Palmer performed a tissue biopsy while Sloan was undergoing exploratory surgery on the tumor on Sept. 16, 1981. As a result of Palmer's diagnosis of cancer, Sloan underwent a hysterectomy, the papers state. Two days later, the court papers state, she was informed by Dolan that the tumor was benign.

As a condition of the settlement, neither Dolan nor Palmer admitted any liability, Swartz said. "They expreslly deny any liability on any grounds for any reason," Swartz said, adding that Dolan was named in the suit because he was Palmer's employer.