It's not uncommon to see cities settle on lawsuits. The city attorney meets with the powers to be and instructs them do to so. They think it is cheaper to pay off than to fight it.
When they do that, it makes the officers look guilty but they (mayor & council) obviously don't care about how it appears. The officers must have acted within reason as I don't see any mention of diciplinary actions taken against them for this incident.
Now the K9 police dog on the other hand should be charged with conduct unbecoming, dismissed from service, and thrown in the pound! No sense in the dog biting both the police & suspect!