Ernst & Young Shielded From Thrift Lawsuits : S&Ls;: Bush Administration agreed to the provision over the objections of regulators. Fear is that taxpayers could now get stung.

Overruling objections by its own regulators, the Bush Administration agreed in its closing days to shield accounting giant Ernst & Young from lawsuits filed by officials of failed thrifts.

As a result, future legal judgments against the company in those cases will be paid by taxpayers.

The provision was tucked into a settlement in which Ernst & Young, while admitting no wrongdoing, agreed to pay the government $400 million to dispose of claims arising from its work for three dozen failed banks and savings and loans.

The arrangement was negotiated by the New York firm’s attorney, Fred C. Fielding, who at the time was also working as an unpaid senior legal adviser to George Bush’s reelection campaign.

The government hailed the Nov. 23 settlement as a “tremendous achievement” for taxpayers. But its announcement excluded mention of the indemnification clause, which was detailed on four pages in the middle of the 100-plus-page document.

Nor did officials disclose the concerns of some regulators who have told the Associated Press that they feared the government had not adequately estimated the possible future cost to taxpayers.

The government and Fielding both stood behind the settlement in interviews. “We felt that the settlement was a good one for us, and we haven’t seen anything to change that,” Resolution Trust Corp. spokesman Steve Katsanos said. He said government negotiators had considered the legal exposure in advance, but “I don’t really know how precise they may have been.”

Said Fielding: “I think it was a good settlement for all parties.”

Despite the government’s endorsement, sources said regulators at both the RTC and the Federal Deposit Insurance Corp. had objected to their superiors about the indemnification provision because many of the firm’s clients remained under investigation.

“In no case were we asked to evaluate how many claims we might have against the attorneys, the bank officers or directors, the very people who might then turn around and sue Ernst & Young,” one former RTC official said, speaking on condition that he not be named. “There was no evaluation of what the government could end up paying.”

Added a second high-level RTC official, also speaking on condition of anonymity: “The decision was made to base the settlement on what we could get out of the accounting firm, not what the future liability might be.”

Fielding, who once served as President Ronald Reagan’s White House counsel, said in an interview that the indemnification clause was a key goal during his negotiations.

During much of the negotiations, Fielding was working both for the firm and Bush’s campaign. Federal law does not prohibit such action.