updated 2/19/2009 8:10:38 PM ET 2009-02-20T01:10:38

A Washington lobbyist has settled her $27 million defamation lawsuit against The New York Times over a story involving then-presidential candidate John McCain, both sides disclosed Thursday.

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The newspaper is not paying any money to end the case, but agreed to let the lobbyist's lawyers make a statement on the Times' Web site.

The newspaper also plans to print a "note to readers" in Friday's editions explaining that it did not intend to imply that the lobbyist and McCain had an affair.

Vicki L. Iseman had sued the Times in December, alleging that the newspaper and several of its reporters and editors damaged her reputation by printing the Feb. 21, 2008, story. Iseman had represented telecommunications companies before the Senate Commerce Committee, which McCain chaired, and the Times reported that McCain aides once worried that the relationship between the two had turned romantic.

A joint statement Thursday from the Times and Iseman's attorneys said she has accepted the Times' explanation "that the article didn't state, and the Times did not intend to conclude, that Ms. Iseman had engaged in a romantic affair with Senator McCain or an unethical relationship on behalf of her clients in breach of the public trust."

"Our client is pleased to be vindicated personally," W. Coleman Allen Jr., an attorney for Iseman, said in an interview.

The Times' executive editor, Bill Keller, said Thursday in a statement that the Times stood by its story "and we are proud of it."

"The McCain campaign and some of its supporters set out aggressively to portray the article in question as a story about an unsubstantiated affair," Keller said. "But it was not that, either explicitly or implicitly."

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