A LaPlata couple, who contended that their infant son was left severely mentally retarded from injuries during his birth at Greater Southeast Community Hospital, have settled a medical malpractice lawsuit against the hospital for more than $950,000 plus medical expenses.

The child's parents, Tasia George Karos and Carl Danien Huth, had contended in U.S. District Court that the hospital failed to discover in time that the infant's delivery would be a breech birth, according to court records.

The parents contended that the child, Daniel Arron Karos, should have been delivered by cesarean section. They charged in court papers that the infant's skull was fractured three or four times during a standard delivery procedure in which forceps were used to assist the birth.

The out-of-court settlement agreement includes $425,000 in damages and legal fees and guaranteed payment of $1,480 a month over 30 years for the child's care, sources said yesterday. If the child dies before the 30-year period, the payments will continue to go to his heirs or parents for the full 30 years, sources said. If he lives beyond 30 years, the payments will continue only until his death, these sources said.

In court papers, the hospital denied it was negligent in connection with the child's birth and denied that its conduct was in any way the cause of the child's current condition.

In their lawsuit, the parents had contended that their son, now 3 years old, suffers from severe and permanent mental impairment and brain damage, is unable to use his hands or arms, cannot walk or speak "or otherwise function as a normal child."

Tasia Karos said yesterday that her son now attends a special preschool near their Maryland home and has shown improvement.

"As long as I can keep Danny home and care for him . . . that's what I want," said Karos, who works as a branch manager at a furniture store with Huth.

According to court records, Daniel suffered from hydrocephalus -- water on the brain -- at his birth. That condition causes the head to swell and is considered one of the most common causes of mental retardation.

The parents contended in their suit, however, that the manner in which Daniel was delivered severely worsened his condition.

According to court records, Tasia Karos said she was brought by ambulance to the emergence room at Greater Southeast on Dec. 28, 1976, and remained there, in labor, for three hours. When she was then moved to the hospital's labor room it was discovered that delivery would be by breech birth, the parents contended in court records.

The parents contended in court papers that since delivery was two months premature, and since it was Karos' first birth, the hospital should have taken steps to determine the position and condition of the child before Karos was taken to the delivery room.

According to court records, Daniel was transferred to Georgetown University Hospital 22 hours after his birth, for treatment there by Dr. David C. McCullough, a specialist in childhood hydrocephalus.

In court records, the parents said that McCullough had told them "that Daniel would never be able to lead a normal life, that he would most likely have to go to an institution and that he would not be able to care for himself in any way."

The parents, however, said that they wanted everything done to give Daniel the best life possible. Operations were conducted to insert a shunt -- a tiny tube -- to drain the liquid that accumulates in Daniel's head, according to court records.

"Danny had the will to live," Tasia Karos said yesterday. When doctors removed him from a life support machine "he continued to fight to live. He just didn't give up," she said.