Background
Judlau Contracting, Inc., served as general contractor on a highway construction project for the Illinois State Toll Highway Authority. In December 2015, Judlau subcontracted demolition work to Omega Demolition Corp for $1,892,000, requiring Omega to obtain Commercial General Liability Form CG0001 with Judlau named as additional insured before commencing work. Omega obtained a policy from James River Insurance Company containing the equivalent CG0001 form, but the policy included an endorsement that excluded coverage for bodily injury to employees of “any” insured—a broader exclusion than the standard form, which typically excluded only employees of the direct employer.
Omega began work on January 1, 2016. On April 5, an Omega employee, Vincente Santoyo, was killed on the job by falling steel beams. Judlau tendered its defense to James River, which declined coverage based on the employer’s liability exclusion. On April 15, Judlau terminated Omega and directed it to cease work, never paying Omega for three months of work performed. Omega subsequently sued for $842,315 in labor and materials plus over $184,900 for scrap materials.
The court affirmed summary judgment for Judlau, holding that Omega was the first party to breach the subcontract. Omega’s obligation to procure proper insurance was a material and essential term of the agreement. The endorsement in the James River policy negated the bodily injury coverage that would typically be provided under a CG0001 form, meaning Omega failed to deliver the coverage Judlau was contractually entitled to receive. This breach occurred when the policy was procured, not at the later date when Santoyo was killed or when James River denied coverage.
Under the first-to-breach doctrine, Omega’s material breach excused Judlau’s obligation to pay for the subcontracted work. The court rejected Omega’s argument that Judlau waived objections by allowing work to commence, noting the subcontract expressly stated that the contractor’s failure to identify insurance deficiencies would not relieve the subcontractor of its insurance obligations. The court also declined to consider Omega’s partial breach argument, which was raised for the first time in the appellate reply brief and thus forfeited.
This decision reinforces that insurance requirements in construction subcontracts are material terms that courts will enforce strictly. General contractors and project owners rely on specific insurance provisions to protect themselves from liability and third-party claims. When a subcontractor obtains a policy that appears compliant on its face but contains endorsements that negate essential coverage, courts will treat this as a material breach, not a technicality. The holding underscores that careful review of actual policy language—not just the form designation—is essential, and that failure to obtain genuinely required coverage can result in loss of payment rights.
For contractors, this case illustrates the risks of not thoroughly vetting insurance policies before commencing work. For subcontractors, it demonstrates that contractual insurance obligations are non-negotiable conditions precedent, and that obtaining an inadequate policy—even if it uses the correct form number—will not satisfy contractual obligations and can eliminate claims for payment.