On May 21, 2025, the Sixth Circuit revived a company’s lawsuit against Blue Cross Blue Shield of Michigan (BCBSM) for breaching its fiduciary duties under ERISA as a third-party administrator (TPA). The plaintiff company, Tiara Yachts, Inc., alleged that BCBSM systematically overpaid provider claims and engaged in self-dealing by paying, and later recovering, overpayments. The Sixth Circuit opinion reversed the U.S. District Court for the Western District of Michigan’s dismissal of Tiara Yacht’s claims, holding BCBSM must face claims that it mismanaged and profited from the Tiara Yacht’s self-funded employee health plan.
Tiara Yachts offered a self-funded health plan to its employees, administered by BCBSM pursuant to an administrative services contract. The contract gave BCBSM authority to interpret plan terms, determine claim eligibility, and to reimburse providers using the self-funded plan assets. Tiara Yachts filed suit against BCBSM in July 2022 arguing that BCBSM improperly paid claims for two reasons. First, Tiara Yachts alleged that BCBSM promised to pay in-network Blue Cross rates for out-of-state claims, but instead paid many out-of-state provider claims at full billed charges. Tiara asserted that this practice, called “flip logic,” led to substantial overpayments. Second, Tiara Yachts alleged that BCBSM enrolled all self-funded clients, including Tiara Yachts, in a “Shared Savings Program.” Under the Shared Savings Program, BCBSM collected 30% of any overpayments that BCBSM recovered or prevented through third-party services. Tiara alleged that this program was a “self-dealing” conflict of interest because BCBSM could allow overpayments then profit from recovering them.
The U.S. District Court for the Western District of Michigan dismissed the case on a motion to dismiss, holding BCBSM’s actions did not qualify as fiduciary conduct under ERISA.
The Sixth Circuit reversed on the grounds that Tiara Yachts plausibly alleged that BCBSM was a fiduciary to the plan exercising “meaningful control” over plan assets, and that BCBSM profited off of its mismanagement of plan assets. For the Flip Logic theory, the court held BCBSM exercised control over plan assets by determining when and how to pay claims and so could be treated as an ERISA fiduciary. For the Shared Savings theory, the Sixth Circuit held BCBSM might be acting as a fiduciary because of BCBSM’s control over the pool of overpayments – a key component of its compensation. The court held that Tiara Yachts could recover damages on behalf of the plan under two provisions of ERISA’s civil enforcement provisions: 29 U.S.C. § 1132(a)(2), which allows certain parties to collect damages or “other equitable or remedial relief” on behalf of the plan, and 29 U.S.C. § 1132(a)(3), which provides for “appropriate equitable relief” such as restitution and disgorgement.
The case has been remanded to the district court for further proceedings. A copy of the Sixth Circuit opinion is available here.
