Non-Imputation & Entity Deals: learn & quiz

The minute version

Why imputation matters

An insured entity knows what its people know. In an equity deal the Insured does not change, so the old principals' knowledge and acts can be imputed to it.
Exclusion 3 of the 2021 owner's policy removes matters (a) created, suffered, assumed or agreed to by the Insured Claimant, (b) not recorded but Known to the Insured Claimant and not disclosed in writing to the Company, and (e) resulting from failure to pay value.
"Knowledge" means actual knowledge or actual notice, not constructive notice from the Public Records (2021 owner's Condition 1).
The Insured includes successors by conversion, merger, consolidation, distribution or reorganization (Condition 1).

ALTA 15-06 (Full Equity Transfer): the Company won't deny liability under Exclusions 3(a), 3(b) or 3(e) because knowledge of, or acts by, the named persons are imputed to the Insured. It is conditioned on the incoming owners being purchasers for value without Knowledge of the matters.
ALTA 15.1-06 (Additional Insured): adds an incoming partial owner as an Additional Insured, with coverage limited to its percentage interest.
ALTA 15.2-06 (Partial Equity Transfer): the partial-transfer version of 15.
ALTA's chart lists all three as 2006 forms, not revised. All are owner's policy forms.

Public underwriter guides commonly condition non-imputation coverage on an affidavit, often with an indemnity, from the persons whose knowledge is being waived.
Exact requirements, and whether a form like 15.1 can name an equity holder as an insured, vary by jurisdiction and underwriter.

A mezzanine lender is secured by a pledge of the ownership interests, not by a mortgage on the land.
ALTA 16-06 attaches to the owner's policy. It assigns policy proceeds to the mezzanine lender, requires the lender's consent to amendments, gives non-imputation protection, and provides that the Company won't deny liability because the mezzanine lender acquires the ownership interests.