Can waiver of subrogation clauses bar insurance company subrogation claims? Bakowski v. Mountain States Steel Explained

The Utah Supreme Court’s decision in Bakowski v. Mountain States Steel provides important guidance on the enforceability of waiver of subrogation clauses in commercial lease agreements and their effect on insurance company subrogation rights.

Background and Facts

Mountain States Steel leased commercial property to Voest-Alpine with a lease term beginning March 1, 1994. The lease required Voest-Alpine to obtain liability insurance covering both parties and included a mutual waiver of subrogation provision. When Mountain States failed to complete required improvements by the lease commencement date, Voest-Alpine employees assisted with the work. On March 4, 1994, before Voest-Alpine took possession, two employees were seriously injured in a cable accident. Mountain States’ insurers settled the injury claims for over $1.6 million and then sued Voest-Alpine under subrogation rights, claiming breach of the insurance procurement obligations.

Key Legal Issues

The court addressed three critical issues: (1) when the lease term commenced for purposes of the insurance obligation, (2) whether the waiver of subrogation clause barred Mountain States’ subrogation claims, and (3) the proper scope of attorney fee awards. The central dispute focused on whether the waiver clause required insurer notification and endorsement to be effective.

Court’s Analysis and Holding

The court applied correctness review to the contract interpretation issues. It held that the lease commenced on March 1, 1994, based on the plain language of the agreement, despite Voest-Alpine not taking possession until April 6. Most significantly, the court ruled that the waiver of subrogation clause independently barred all subrogation claims. The first sentence of the waiver provision unequivocally waived “any and all rights of recovery” for losses covered by insurance, while the second sentence’s notice and endorsement requirements did not create conditions precedent to the waiver’s effectiveness.

Practice Implications

This decision reinforces that waiver of subrogation clauses should be drafted with clear, independent language that does not depend on subsequent procedural requirements. Insurance companies cannot rely on lack of notification or policy endorsements to avoid the effect of properly drafted waivers. The ruling also demonstrates the importance of precise contract language—the court refused to rewrite the parties’ agreement to achieve an “equitable” result when the plain language was unambiguous.