## Facts

- Fourteen-year-old Michael Smithey assaulted neighbors Ruth Parsons and her minor children, Dawn and Gail Parsons.
- Smithey’s parents held a liability policy issued by Continental National American Group (CNA) containing an exclusion for injuries “intentionally” caused.
- CNA investigated the incident; its claims representative reported information suggesting Smithey “was not in control of his senses” at the time.
- CNA retained counsel to defend Smithey in the tort action; during the representation, counsel obtained confidential information from Smithey about the incident and his mental state.
- The Parsons plaintiffs obtained a $50,000 tort judgment against Smithey.
- The plaintiffs then pursued garnishment against CNA to collect under the policy.
- In the garnishment action, CNA denied coverage based on the intentional-acts exclusion.
- The same firm that defended Smithey in the tort suit defended CNA in garnishment and relied on information about Smithey’s mental state obtained through the earlier attorney-client relationship with Smithey.

## Issues

1. Whether an insurer is estopped from denying coverage in a garnishment action when its coverage defense relies on confidential information obtained by the insurer’s appointed defense counsel from the insured during the underlying tort defense.
2. How attorney-client confidentiality and counsel’s duties to the insured constrain an insurer’s ability to assert policy exclusions after providing a defense.

## Decision

- The Arizona Supreme Court vacated the court of appeals’ opinion.
- The court reversed the superior court’s judgment for CNA.
- The court held CNA was estopped from denying coverage under the intentional-acts exclusion because its coverage position was grounded on confidential information obtained from the insured through defense counsel.
- The court directed entry of judgment for the Parsons plaintiffs against CNA for $50,000.

## Legal Principles

- Defense counsel selected and paid by an insurer forms an attorney-client relationship with the insured; counsel’s loyalty and confidentiality obligations run primarily to the insured.
- An insurer may not use against the insured confidential communications or information obtained through defense counsel’s representation of the insured to support a later coverage denial.
- When an insurer undertakes a defense and then asserts a coverage defense derived from privileged insured communications, equity may estop the insurer from invoking the exclusion.
- Protecting attorney-client confidentiality in the insurer-insured-counsel relationship serves public policy by preserving candid communications and the integrity of the defense function.

## Conclusion

Because CNA’s coverage denial depended on confidential information obtained through counsel’s prior representation of the insured in the tort action, the insurer was estopped from asserting the intentional-acts exclusion, and the judgment creditors recovered the full $50,000 from CNA in garnishment.


Parsons v. Cont'l Nat'l Am. Grp., 113 Ariz. 223, 550 P.2d 94 (Ariz. 1976)