Sanders v. Citizens National Bank of Leesburg

Lee Sanders (plaintiff) established an irrevocable life insurance trust benefitting his wife and children. Citizens National Bank of Leesburg (defendant) was named trustee. The trust corpus was comprised of several life insurance policies of varying value on Sanders’s life. In the bank’s role as trustee, it was obligated to timely pay the policy premiums necessary to maintain the policies in the trust. Because the trust corpus was insufficient to pay the premiums, Sanders periodically funded the trust to ensure the premiums could be paid. The trust instrument expressly stated that Sanders was not legally obligated to continue funding the trust. Approximately three years after the trust was established, the bank failed to timely pay the premiums on the largest policy in the trust and the policy was cancelled. Because of health problems Sanders had developed in the intervening three years, the bank was unable to obtain a similar policy to replace the cancelled one. The replacement policy the bank obtained had less favorable terms and a higher premium. When Sanders discovered the bank’s error, he refused to fund the trust to pay the premiums for the inferior replacement policy. In response, the bank exhausted the cash value of all the remaining policies in the trust to cover the costs it had expended obtaining the replacement policy and then resigned as trustee. Sanders and the trust beneficiaries each separately sued the bank for damages based on breach of the bank’s duties as trustee. The trial court held that Sanders, as the settlor of an irrevocable trust who retained no interest in the trust corpus, had no standing to sue the trustee. Sanders appealed.