What's the context? Conversation with neighbors over beer? Applying for a state license?
You'd certainly have to answer yes to the questions asking about prior malpractice suits or settlements if it was in the window they ask about.
I do have to ask though, if this isn't a hypothetical question, why on earth wouldn't you just refer the guy to a dentist and pay the bill? How does a chipped tooth ever turn into a lawsuit or even a settlement?
You report it and explain like you did above. Nobody is likely to reject you because of that. However, they probably get a lot of shady applicants going job to job or locums, etc. only to find after some screening that they have a few significant lawsuits as well, maybe still pending.