Is the Non-Imputation Endorsement available in Florida?
Imputed knowledge can be defined as: The comprehension attributed or charged to a person because the facts in issue were open to discovery and it was that person’s duty to apprise himself or herself of them; more accurately described as knowledge. This definition confuses me, so let’s start with a common real estate example to help us define this term better:
John is buying Bill’s interest in SunGate, LLC. John has not been a part of the business in the past and knows very little about Bill and how he’s been operating the business. John would like to benefit from Bill’s existing Owner’s Policy, but is concerned that he may not have coverage over any defects that Bill has knowledge about. Specifically, will Bill’s knowledge of a defect affect Bill’s coverage under the Owner’s Policy. In this context, imputed knowledge can be defined as facts about the property/company history that a prudent buyer of an interest in LLC should know/have found out and is therefore “imputed” over to the Buyer from the Seller …regardless of if the Buyer actually found out/is aware of it.
There are two important things to consider from a title insurance standpoint:
- Some states define “Known” or “Knowledge” to include both actual knowledge (facts the insured is actually aware of) and imputed knowledge.
- Title Insurance coverage is NOT provided for Knowledge of defects, liens, encumbrances, adverse claims or other matters which are Known by the Insured.
Coverage Over Imputed Knowledge
This imputed knowledge title insurance coverage exclusion scares most buyers. In states where Knowledge includes both Actual and Imputed Knowledge, a buyer can usually obtain a Non-Imputation Endorsement which effectively removes the coverage exclusion for imputed knowledge. Florida is a state that defines “Knowledge” or “Known” as:
“Actual knowledge, not constructive knowledge or notice that may be imputed to an Insured by reason of the Public Records or any other records that impart constructive notice of matters affecting the Title.”
Because Florida does not include imputed knowledge in it’s definition of Knowledge to be excluded from coverage, a Non-Imputation Endorsement is not necessary and is explicitly prohibited.