The core problem addressed in a Non-Imputation Affidavit. Standard title insurance policies contain crucial exclusions from coverage. Among the most pertinent in this context are exclusions related to title defects, liens, or other adverse matters that are “known” to the insured party but are not part of the public record and have not been disclosed to the title insurer. In transactions involving entities, a legal principle known as “imputation of knowledge” can attribute the knowledge possessed by key individuals (like partners or officers) to the entity itself or to incoming stakeholders. This imputation can trigger the policy’s knowledge-based exclusions, creating a significant gap in title insurance coverage precisely when new investors or partners most need it. The non-imputation affidavit and the resulting endorsement work in tandem to bridge this potential coverage gap.

Title insurance policies provide crucial protection, but they are not absolute guarantees against all possible title problems. Policies universally contain standard exclusions that define the boundaries of coverage. Exclusions are particularly relevant to the issue of imputed knowledge:

1. Exclusion 3(b) (Referencing standard ALTA policy language): This exclusion typically bars coverage for loss or damage arising from “defects, liens, encumbrances, adverse claims, or other matters… not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy”. This language directly targets matters within the insured’s knowledge – when the “insured claimant” named in the policy is a business entity (such as a partnership, LLC, or corporation), the application of Exclusion 3(b) becomes complex. The critical question is: whose knowledge constitutes the “knowledge of the insured entity”? Under common law principles of imputed knowledge, the awareness of key individuals acting for the entity – partners, managing members, officers, directors – regarding off-record title issues could legally be attributed to the entity itself. This means Exclusion 3(b) could be triggered, denying coverage, even if the entity’s current management or incoming investors were genuinely unaware of the specific defect.