Arizona Court of Appeals Holds LLC Member Was Not Insured Under Policy

The Arizona Court of Appeals recently held that an individual who was the trustor of an insured trust and the managing member of an insured limited liability company had no standing to sue a title insurer under the title policies.  See Eden v. Fid. Nat. Title Ins. Co., 2016 WL 1440185 (Ariz. Ct. App. Apr. 12, 2016), as amended (Apr. 19, 2016).  In the case, an LLC purchased a property and financed the purchase with a loan from a trust.  The loan was secured by a deed of trust, and the title insurer issued a policy naming itself as trustee, the individual as the trustor, and the trust as the beneficiary and insured party.  Later, a second LLC of which the individual was the managing member purchased additional adjoining properties, and the title insurer issued a policy naming the second LLC as the insured.  When a title issue later arose, the individual sued the title company for breach of the policy.  He argued: (i) as trustor of the insured trust, he was a party to the policy and could sue for its alleged breach; and (ii) as the managing member of the insured LLC, he was the “equitable owner” because its “profits and losses flow[ed] through his tax returns.”  The trial court dismissed the complaint and, on appeal, the Court of Appeals affirmed.  First, it held that the individual was not the named insured on the trust’s policy, and that he therefore had no standing to sue under the policy regardless of whether he was the trustor.  Second, it held that the LLC was the insured under the second policy, and that allowing a managing member to pursue its contractual rights under the policy would disregard the corporate form.

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