Sixth Circuit Clarifies Fiduciary Duties under ERISA in Challenge of Blue Cross Blue Shield’s Overpayment Practices

In Tiara Yachts, Inc. v. Blue Cross Blue Shield of Michigan, No. 24-1223, —F.4th—-, 2025 WL 1453273 (6th Cir. May 21, 2025), the Sixth Circuit Court of Appeals addressed whether Blue Cross Blue Shield of Michigan (BCBSM) acted as an ERISA fiduciary in its administration of Tiara Yachts’ employee health benefits plan, particularly concerning allegations of overpaid claims and self-dealing. In reversing the district court, the Sixth Circuit underscored the broad scope of fiduciary duties under ERISA, reaffirming that contractual obligations do not negate fiduciary responsibilities.

Tiara Yachts, a Michigan-based boat manufacturer, hired BCBSM to manage its self-funded health benefits plan. This agreement was governed by an Administrative Services Contract (ASC), wherein BCBSM handled claims processing and payment to medical providers using funds from Tiara Yachts’ plan. Allegations arose that BCBSM overpaid certain claims by using a method called “flip logic,” which reimbursed out-of-network providers at higher rates than those negotiated by regional Blue Cross Blue Shield affiliates—known as “Host Blues.” Tiara Yachts claimed that this practice resulted in systematic overpayments, depleting plan assets. Additionally, BCBSM implemented a “Shared Savings Program” (SSP) that allegedly allowed it to profit from its mismanagement by clawing back overpayments and retaining a percentage of the recovered funds. Tiara Yachts argued that this constituted a breach of fiduciary duty and self-dealing under ERISA.

The district court dismissed Tiara Yachts’ claims, ruling that the company failed to plausibly allege that BCBSM acted as an ERISA fiduciary. It determined that BCBSM’s actions were contractual and, therefore, outside ERISA’s scope, and that the relief sought by Tiara Yachts was unavailable under ERISA. The Sixth Circuit reversed the district court’s decision, focusing on whether BCBSM exercised any authority or control over plan assets, thus conferring fiduciary status under ERISA. The court found that BCBSM, by deciding how much to pay providers and writing checks from the plan’s assets, exercised sufficient control over the disposition of those assets, qualifying it as a fiduciary. The court rejected the notion that BCBSM’s practices were merely contractual matters, highlighting that contractual and fiduciary obligations can coexist under ERISA.

Regarding the SSP, the court examined whether BCBSM exercised discretion over its compensation. The ASC stipulated a 30% fee from savings, but BCBSM’s control over claims processing—specifically, its ability to inflate claims initially—meant it could manipulate the pool of overpayments from which it profited. This discretion over its own compensation affirmed BCBSM’s fiduciary role.

The court also addressed the relief available under ERISA. It found that Tiara Yachts adequately sought recovery on behalf of the plan under 29 U.S.C. § 1132(a)(2), which allows for remedies to redress losses to the plan. Additionally, the court found that equitable relief, such as restitution and disgorgement under § 1132(a)(3), was appropriate for BCBSM’s retention of SSP profits, although not for funds still held by providers.