The future of Lloyd’s Open Form

At the Marine Insurance Nordics Conference held in Oslo in November of this year, the future of the Lloyd’s Standard Form of Salvage Agreement, the Lloyd’s Open Form (“LOF”), was the subject of a panel discussion.

The panel consisted of Andreas Øgrey, Global Head of Casualty and Major Claims at Skuld, Helga Grønlund Hodne, Senior Claims Handler and Adjuster at Norwegian Hull Club, Dave Wisse, Senior Commercial Manager at SMIT Salvage and Marcus Cave, Naval Architect at TMC Marine.

The discussion was moderated by Herman Steen.

Amongst the topics discussed were the ongoing Lloyd’s review of the LOF and the International Group’s report on the impact of delays in salvage contracting.

Lloyd’s review of the LOF

It was announced by Lloyd’s last year that it was considering to close its Salvage Arbitration Branch, which could effectively be the end of the LOF, at least as we know it.

The Lloyd’s Salvage Arbitration Branch administers the form and provides a framework within which the LOF arbitration process operates.

The main reason for the announcement by Lloyd’s was the steady decline in the use of LOF in recent years

The Salvage Union and the insurers reacted quite strongly, expressing support for the continued use of the LOF. As a result, Lloyds rowed back on its announcement and has since said that it will continue to support the LOF.

There is now a Lloyd’s working group which is considering the future of LOF. The commitment to the LOF seems to be there, but the question is what comes out of the review.

International Group’s report on the impact of delays in salvage contracting

Another topic which was discussed, was the report which the International Group of P&I Clubs has commissioned from the previous UK SOSRep (Secretary of State's Representative), Hugh Shaw, on the impact of delays in salvage contracting.

The main reason for the commissioning of this report was that the P&I clubs have been worried that delays in the contracting of salvage services, for example by negotiating a commercial contract instead of signing an LOF, in some cases might lead to an escalation of the situation and an increased risk to the crew, the environment and the vessel itself.

The report considered the dilemma that on the one hand the LOF is quick and easy to enter into, is flexible and avoids delays. It is often suitable in high risk, high urgency cases. Furthermore, generous LOF rewards ensures financing of the salvage industry.

On the other hand, owners and insurers are often reluctant to enter into an LOF unless it is necessary because the remuneration to be awarded will usually be substantially higher than under a commercial contract. Some have also taken the view that the LOF rewards have in some cases been too high, and that a commercial contract is better suited for low risk, low urgency cases.

The report has made several recommendations to the industry which includes increased transparency, training and cooperation between stakeholders, which were discussed by the panel.