Page 18: of Marine News Magazine (December 2014)

The importance of shipping to world trade hardly needs stating, carrying as it does more than 9 billion tons of cargo each year in some 4,500,000 ves- sel movements. And while there have been major improvements in ship and operational safety over the past decades, casualties do still occur and will con-tinue to do so. Engine breakdowns, Þ re, bad weather and, of course, the human element can cause serious incidents putting a vessel, its crew, cargo and the environment at risk. Marine salvage is the business of providing services to casualty vessels with the objective of saving life, protecting the environment and saving property. The salvage industry has evolved over the centuries and one of its underlying principles is that salvors should be en- couraged by the prospect of a fair reward to go voluntarily to the aid of a casualty vessel. The principle of Òno cure, no payÓ is long established and widely accepted: the salvor will only receive an award if the job is successful. The award is largely based on the nature of the services provided, the conditions and the value of the property saved from peril. Marine salvage is governed by the 1989 Salvage Conven- tion and can be conducted under a variety of contracts in many jurisdictions. The most commonly-used contract is the LloydÕs Open Form (LOF) salvage contract, which has been in existence for more than 100 years. It was developed by the London insurance market, LloydÕs, and continues to be ad- ministered by the LloydÕs Salvage Arbitration Branch reß ect-ing the important role LloydÕs retains in the insurance of ships and cargo. The contract has evolved to keep pace with changes in shipping and the current edition was published in 2011. The key feature of LOF is that it enables salvage services to be provided quickly without the need to negotiate terms. The salvor undertakes to use his Òbest endeavorsÓ to save the ship and cargo and prevent pollution and parties agree to settle the award after conclusion of the services, based on the value of the property saved and taking account of several factors including the degree of risk to property, the time taken and the skill of the salvor. Most awards are agreed to amicably but if there is a dis- pute a deÞ ned process of arbitration, managed by LloydÕs, allows for an independent arbitrator to decide what is a fair award for the services provided and there is an appeal procedure. There is a trusted process for the deposit of Þ -nancial guarantees.ISU, as the uniÞ ed, global voice of marine salvors sup- ports and promotes the use of LOF because it believes that it has great beneÞ ts for all parties including the owners and insurers: LOF is a clear and simple contract and enables rapid intervention in an evolving casualty situation. There is no need to negotiate terms Òupfront.Ó The contract can be quickly agreed with a verbal agreement that is legally binding. It can be signed at a later stage. The integrity of the contract is assured by LloydÕs, a world scale insurance market with considerable resources. There is a deÞ ned process and resources to administer use of LOF and it is a fair contract and has a clear dispute reso- lution process using LloydÕs Arbitrators. For owners and insurers, one key beneÞ t is that the risk of the salvage operation is carried by the salvor alone. Sal- vors are adept at managing such risk and yet other forms of contract used in a casualty situation can mean that the owner and insurers bear some of the risk of the operation. Despite these beneÞ ts it is well recognized that there is a decline in the use of LOF that goes beyond the overall decline in all salvage operations due to improved ship and operational safety. In recent years, there have been some 50 LOFs annually, down from 200 LOFs each year 20 years ago. There are various theories about the disproportionate decline in the use of LOF such as the idea that shipowners and their insurers think the contract is costly to use and it is too generous to salvors. There may also be a lack of understanding in the insurance community about the con-tract and its beneÞ ts. Additionally, it is possible that excess capacity among salvage contractors means they are more prepared to work on daily hire rates and on other commer- cial terms. ISU believes it is important to improve levels of understanding of this important contract especially among the younger element of the underwriting community. LOF is not perfect; not least because it is chieß y struc- tured to reward the saving of property. That may well have been right when the order of priority was saving life; then saving property then protecting the environment, whereas today the order is saving life; protecting the environment then saving property. Many salvors therefore believe that LOF does not adequately reward them for the beneÞ t their work confers on the environment. ISU recognises there are a variety of other salvage contacts which have their place in global salvage and it supports com- petitive global provision of salvage with its members free to agree whatever terms they wish when providing salvage ser- vices. But the time has come for LOF users and supporters to once again become active in promoting its beneÞ ts.INSURANCECOLUMNThe Importance of the Lloyd?s Open Form Salvage Contract By John A. Witte Jr., Executive Vice President at Donjon Marine Co., Inc. 18 MNDecember 2014MN Dec14 Layout 18-31.indd 18MN Dec14 Layout 18-31.indd 1811/25/2014 10:05:44 AM11/25/2014 10:05:44 AM