ERISA-Sixth Circuit Rules That Blue Cross And Blue Shield Violated Its Fiduciary Duties Under ERISA By Charging A Fee To The Plan To Provide Funds To Meet Blue Cross's Own Monetary Obligation To The State

August 1, 2013

In Pipefitters Local 636 Insurance Fund v. Blue Cross and Blue Shield of Michigan, No. 12-2265 (6th Cir. 2013), the plaintiff was the Pipefitters Local 636 Insurance Fund (the "Fund"), a multiemployer self-funded benefits plan. The Fund alleged that the defendant, Blue Cross and Blue Shield of Michigan ("BCBSM"), violated its fiduciary duties to the Fund under ERISA, by discretionarily setting and billing the Fund for a fee (the "Fee") to cover its own monetary obligations to the state. The district court granted summary judgment to the Fund, and BCBSM appeals.

In this case, the Fund had entered into an administrative services agreement with BCBSM, under which BCBS would perform enumerated services for the Fund, such as automated claims processing, financial management and reporting, services for participant inquiries and/or communications, and maintenance of all necessary records. The agreement expressly states that BCBSM is not the Plan Administrator, Plan Sponsor, or a named fiduciary for purposes of ERISA and its obligations shall be limited to the processing and payment of enrollees' claims. In connection with the services agreement, BCBSM charged the Fee to the Fund, to cover BCBSM's own Medigap obligation to the state of Michigan. Eventually, the Fund sued BCBSM over the Fee, alleging that that BCBSM breached its fiduciary duty under ERISA by discretionarily imposing and failing to disclose the Fee, the imposition of which violated state law.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") had to first determine whether BCBSM was a fiduciary under ERISA with respect to the Fund. The Court concluded that BCBS was such an ERISA fiduciary. It charged the Fee to the Fund when and in the amount it determined, thus demonstrating that BCBSM exercises authority or control over disposition of the Fund's assets, satisfying one way in which a person becomes an ERISA fiduciary. Next, the Court had to determine whether, in charging the Fee to the Fund, BCBSM breached its fiduciary duties to the Fund. Here the Court concluded that, by discretionarily imposing the Fee to obtain funds to meet its own Medigap obligation to the state, BCBSM breached the ERISA proscription against fiduciary self-dealing, and thus breached an ERISA fiduciary duty to the Fund. As such, the Court affirmed the district court's decision.