Dean Thomas from Lydney was killed on 3 May 2003 when a hydraulic lowering device on a paper slitter rewinder was set off while he was inside the machine. An untrained workmate had pressed the wrong button by mistake.
At the time he was working for J R Crompton, which manufactured perforated paper.
His former employer was successfully prosecuted by the Health and Safety Executive in 2006.
The claim was brought against J R Crompton by the Thomas family.
It had been alleged that Thomas was in some way responsible for the accident, a claim that was dismissed by Justice Griffiths-Williams who heard the case at the High Court in London.
He found that Thomas would not have expected his workmate to have started the machine and described the accident as a tragic mistake on the part of his former colleague.
David Lewis of UNITE who backed the family throughout the trial, as well as giving evidence, said: "This case has been a grotesque dance by Zurich Insurance to reduce the amount of compensation that this innocent family should receive.
"We all have a right to go to work and not be injured or killed and the union is pleased to have been able to stand by this family to see justice done in one of the most tragic situations that anyone can face."
Paper mill death case ends in 335,000 settlement
The family of a man crushed to death at a paper mill in Gloucestershire has been awarded 335,000 compensation at the High Court.