Can an attorney cite the law which states it would be illegal for MSU to pay civil suits from their general fund/endowment?

I don't have the specific answers to the questions, which seem reasonable. The law doesn't exist as some sort of arbiter of fairness. It can only put a price on what can't otherwise be priced. Unfortunately, there's nothing anyone can do that can undo what Nasser decided to do. Not even Nasser himself, if he had an infinite supply of money. So the legal system exists to figure out how to put a price on that. It's an unpleasant, highly-technical system that often violates what we'd think of as common sense or fairness. But since endowments have specific legal restrictions, it's likely that Engler is somewhat correct, even though it doesn't seem like a fair assessment. Whatever settlements are made are ultimately either coming from taxpayers, increased tuition or reduced services. Hopefully, that means fewer administrators, but administrative bloat is a known virus in education and there's no existing cure.

A fact forgotten by anyone pointlessly trying to prohibit someone from paying x obligation from y source. 

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As the one being (obliquely) responsed to, I’ll take it. It’s not any one law that is easy to point to (where you can say it’s X statute), but it’s a hodgepodge of different areas of Law and legal principles, ranging widely from tax law to fiduciary laws. A good articulation of it is this: “Law and tax regulations are designed to prevent a nonprofit's money from being pocketed by officials or used in ways wildly inconsistent with donors' interest in the college.” Tack on that restricted funds can only be used as specified, and that pretty much means it only can come from elsewhere (either general operating or insurance coverage, but either way that’s taxpayer supported). Here is a very good article (albeit about a very different type of situation) that talks about how donor money can and can’t be used: https://www.insidehighered.com/news/2015/03/05/where-will-sweet-briars-…. Basic point: endowment money isn’t a piggy bank for covering a university’s liabilities. As a public institution there is really only one other source: the taxpayer.