Paul Lilley's lawyers said they believed it was the first case of its kind in the UK where a person has received compensation for witnessing injuries inflicted on another person in such circumstances.
Paul, 17, of Newark, Nottinghamshire, received an undisclosed amount for post-traumatic stress disorder, in an out-of-court settlement of his High Court negligence claim against Lincolshire Health Authority.
To claim damages for post-traumatic stress, the House of Lords decided in one of the Hillsborough football tragedy rulings that the claimant must prove that the traumatic event caused the psychological injury and that those responsible were negligent - but also that he or she was close in terms of distance and time, close in relationship to the victim and close in terms of means of communication.
While successful claims for post-traumatic stress disorder have become relatively common, the teenager's case appears to break new legal ground because the award was based on him witnessing Allitt deliberately attack a baby girl in the next bed on the children's ward at Grantham and Kesteven General Hospital, Lincolnshire. Paul was an 11-year-old patient at the time. Afterwards he suffered nightmares.
The family's solicitor,Lesley Herbertson, said: "To the best of my knowledge this has never happened before."
Paul's father, David, 47, said: "We are very pleased and relieved that the matter has been settled after six years.
"It is the end of a sad chapter and means can now get on with our lives."
Allitt, now 26, is detained in Rampton high security hospital near Retford, Nottinghamshire, after being given 13 life sentences for killing four children, attempting to murder three others and causing grievous bodily harm to six more.
A spokesman for the health authority said: "We can confirm that a settlement has been made but we cannot disclose the amount of compensation involved."Reuse content