The U.S. Court of Appeals for the Sixth Circuit recently reversed a lower court decision in Tiara Yachts, LLC v. Blue Cross Blue Shield of Michigan, reinstating ERISA fiduciary breach claims. The decision reinforces important ERISA principles and demonstrates that plan service providers and administrators, such as third-party administrators (TPAs) and Pharmacy Benefit Managers (PBMs), can be functional fiduciaries that must act in the best interests of a Plan and its members.
TheTiara Yachts Opinion
The case was brought in the district court by Tiara Yachts, which hired Blue Cross Blue Shield of Michigan (BCBS) to administer its self-funded healthcare benefits plan. Tiara Yachts sued BCBS for breach of fiduciary duty under ERISA, for “knowingly squander[ing] plan assets by systematically overpaying” certain claims. Tiara Yachts, Inc. v. Blue Cross Blue Shield, 138 F.4th 457 (6th Cir. 2025).
The district court dismissed Tiara Yachts’ claims, finding that BCBS was not acting as an ERISA fiduciary in connection with its administration of Tiara’s self-funded health benefits plan, particularly in relation to alleged overpayments and mismanagement. Id. at 7. The Sixth Circuit reversed, rejecting this reasoning and highlighting several critical points:
1. ERISA Fiduciary Status Is Functional
The Sixth Circuit reiterated the established rule that an entity is an ERISA fiduciary if it exercises:
- Any authority or control over plan assets; or
- Discretionary authority or responsibility in the administration or management of the plan.
The Court emphasized the “functional” nature of fiduciary status, noting that what matters is the actions taken by the fiduciary, not simply the labels in a contract.
2. Contractual Duties Do Not Preclude Fiduciary Obligations
The district court improperly found that Tiara Yachts’ claims were “fully matters of contract” and therefore outside ERISA’s scope. The Sixth Circuit explained that contractual duties and ERISA fiduciary status are not mutually exclusive. Indeed, an allegation of breach of contract does not remove the claim from ERISA’s ambit. The Circuit explained that if it did, it would “gut ERISA’s fiduciary provisions.”
3. Discretion Over Plan Assets Means Fiduciary Control
The Court held that BCBS functioned as an ERISA fiduciary because it controlled the disposition of plan assets in processing claims. It further noted that where a contract gives an administrator discretion over its own compensation, and that discretion is exercised, fiduciary obligations attach.
Why This Matters for Employer Plans
This decision has far-reaching implications for sponsors of self-funded health plans:
Claims Reimbursement: The Sixth Circuit reaffirmed that claims adjudications and reimbursement are functions implicating the use or distribution of plan funds that can confer fiduciary status. This provides plans with a stronger legal footing when challenging improper payments or reimbursement spread by TPAs and/or PBMs.
Rebates and Compensation Structures: When a PBM or administrator has exclusive control over rebates or the ability to determine its own fees, it may meet the threshold for ERISA fiduciary status—opening the door for breach of fiduciary duty claims under ERISA.
Contractual Shields Will Not Block ERISA: TPAs and PBMs frequently rely on the terms of their contracts to argue that their actions fall outside ERISA. The Sixth Circuit’s decision is a reminder that ERISA fiduciary duties are not precluded by contractual disclaimers where the functional test is met.
How Frier Levitt Can Help
Frier Levitt’s Plan Sponsor Group has deep experience advising self-funded plans, employers, and fiduciaries on ERISA compliance and enforcement. Our services include:
- Contract review and negotiation with TPAs and PBMs
- Rebate and claims audits
- ERISA fiduciary compliance support
- Litigation and enforcement of ERISA fiduciary duties
- Strategic counseling on plan governance and risk mitigation
The Tiara Yachts decision highlights the importance of understanding fiduciary obligations and that legal options are available when service providers exploit contractual language in an attempt to avoid transparency and accountability.
If your plan is facing issues with obtaining data, audits, claims mismanagement, or rebates, contact Frier Levitt to ensure you are meeting your fiduciary obligations to the Plan and its members.
Senior Associate
