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LOF revamp gathering speed

14 December 2022
A capsized vessel in the sea. Credit: Shutterstock

The Lloyd’s Open Form (LOF) contract for vessel salvage is undergoing a major revamp in response to declining use by the maritime community. The work focuses on three areas: The first being to examine costs and awards (to address a market perception that the LOF system is expensive); the second to raise the profile of the LOF in the Far East and Asia, where it is rarely used; and the third to position salvage in the context of the Environmental, Social, and Governance (ESG) movement that is gathering speed. 

“The LOF is a prime example of a tool designed to save lives and avoid damage to the environment and is therefore extremely relevant from an ESG perspective,” explains Kiran Khosla, Principal Director (Legal) at ICS, which is participating in the review. 

The changes are being designed to reignite demand for the LOF, which is losing momentum. “Some underwriters have been using other contracts as they feel LOF can give rise to unjustly high salvage awards that can be avoided through other contractual mechanisms,” explains Nick Coleman, chair of the salvage forum at International Union of Marine Insurance (IUMI) and senior claims executive for marine claims at Gard AS. He added that there have also been fewer incidents, which may account for the reduced usage of the LOF.

Captain Nicholas Sloane, President of the International Salvage Union (ISU) and director at Resolve Marine, believes that the LOF is being judged unjustly. “The LOF is a document produced by property interests and underwriters to support them in their time of need – and was not produced by the salvors,” he says. Although he agrees that the LOF is due to evolve to meet client needs, Sloane believes that this must be accompanied by clear information about the benefits of using the form as there is “a lack of understanding and appreciation of the award / settlement process & procedures”.

Both Sloane and Coleman believe that the form revamp is timely given the adoption of alternative fuels by the global fleet. “In the first big casualties – with fuel being leaked or batteries on fire – there would be no idea of how long a salvage operation will go on or what assets will be required, so this uncertainty may make the LOF more popular in the short term,” Coleman says.

Sloane emphasises the need for a quick, professional response to incidents involving new-generation vessels and green cargoes He warns, “The intervention of professionals becomes even more critical since salvors deal with these scenarios weekly, whereas the local coastal state may be experiencing a disaster of this magnitude for the first time.”