The recent decision in Tiara Yachts v. Blue Cross Blue Shield of Michigan highlights a growing legal threat facing employers that sponsor self-insured health plans. It sends a clear message to plan sponsors that they cannot assume their administrator is always acting in the best interest of the plan. More importantly, they cannot afford not to know how those administrators are operating.
In this case, the court allowed two ERISA claims to move forward. Tiara Yachts alleged that BCBSM overpaid claims by relying on internal pricing methods and then paid itself through a so-called shared savings program. These actions were not treated as routine administration. They involved decisions about plan assets and how those assets were distributed.
What makes this case especially important is the court’s finding that discretion over plan operations can create fiduciary responsibility. When an administrator has the authority to decide how much to pay, when to pay it and how to reimburse itself, those decisions fall under fiduciary duty. If that discretion is misused, the legal consequences can be serious not only for the administrator but also for the employer that failed to provide proper oversight.
What Makes This Case Different
What sets this case apart is that it was not about a billing mistake or an undisclosed administrative fee. Tiara Yachts accused its third-party administrator of overpaying healthcare providers and then turning around to collect a portion of the so-called savings when it recovered some of those overpayments. This wasn’t incidental. It was part of an established process that raised serious questions about discretion and financial control.
BCBSM tried to argue that it was not acting as a fiduciary. The court disagreed. It pointed to the company’s authority to approve claims, its control over plan assets and its discretion in deciding how and when payments were made. Taken together, those functions were more than enough to establish fiduciary status under ERISA.
The court also addressed the second part of the allegation. If BCBSM used its discretion to determine its own compensation through the shared savings arrangement, that could constitute a prohibited transaction. Under ERISA Section 406(b), a fiduciary is not allowed to use plan assets for its own benefit, regardless of the language in the service agreement
Why It Matters to Plan Sponsors
This case is important because it doesn’t involve fraud or extreme misconduct. Instead, it centers on everyday administrative decisions that are common across the industry. Many third-party administrators routinely make choices about how claims are repriced, how provider agreements are managed, how reimbursements are handled and when plan funds are distributed.
These functions may seem routine but they carry real legal weight. If your administrator has the authority to make these decisions and especially if they are using that authority to pay themselves from plan assets, your plan may be at greater legal risk than you realize. What appears to be standard operating procedure could, in the eyes of the court, create fiduciary duties and open the door to liability.
What Courts Are Looking For Now
This is not the first case to raise questions about fiduciary conduct, but it is one of the most direct in drawing the line between day-to-day plan administration and legal responsibility. The court made clear that what might appear to be routine administrative control can, in fact, amount to fiduciary authority. Arrangements like shared savings programs may create conflicts of interest if they allow administrators to benefit financially from the decisions they make. When employers fail to monitor those activities, they risk being seen as breaching their own fiduciary duties.
The message is straightforward. If you don’t fully understand how plan funds are being handled or where your administrator is exercising discretion, your plan could already be exposed to legal and financial risk.