The designation of property is the most important clause in a fire insurance policy. As per fire insurance policy wordings, the designation of property clause is defined as – For the purpose of determining, where necessary, the item under which any property is insured, the insurers agree to accept the designation under which the property has been entered in the insured’s books.
In common language, it means that after an insurer has accepted this clause in the policy, it will accept the classification of items and respective sum insureds as per the policyholder’s books or fixed asset register. This imparts a greater degree of flexibility to the policyholder – now that the standard approach for bookkeeping is acceptable to the insurer also.
Additional Read: What is the reinstatement clause in fire insurance?
Let us explain the designation of the property clause with an example to make things more clear.
Below is the fixed asset register (FAR) of a client –
| Category | Sum Insured |
| Building | 100000000 |
| Leasehold improvements | 25000000 |
| Furniture & Fixture | 40000000 |
| Plant & Machinery | 50000000 |
| Stocks | 10000000 |
In the above list, if the client has included all electronic equipment under Plant & Machinery, the insurer will have to abide by the classification done by the client at the time of settling the claim. Insurers cannot deny the claim basis incorrect classification of the asset provided the asset is covered in the policy with appropriate sum insured value.
