New Open Form Agreement From The LMA

Following feedback, the Lloyd’s Market Association (LMA) has released LMA5654A, a revised version of the Lloyd’s Open Form (LOF) Default Agreement, originally published in September 2024. It was anticipated when the clause was first launched that there would be periodic reviews and this is the outcome of the first review.

An Accompanying Guidance Note has also been issued to support stakeholders in interpreting and applying the agreement. Both documents were drafted in co-operation with the International Chamber of Shipping (ICS).

LMA5654A was developed to create contractual certainty between shipowners and insurers that LOF is encouraged to be used as the contract with salvors in situations where a ship is in danger and immediate expert salvage assistance is required. LOF itself is a long-established no-cure no-pay contract agreed directly between the shipowner and salvor, incorporating the Lloyd’s Salvage Arbitration Clauses (LSAC), which govern the arbitration process for determining salvage awards.

LMA5654A also has a section dealing with situations where the danger is not so immediate, which encourages dialogue between insureds and insurers as to the most appropriate contract for the salvage situation. This is intended to ensure cooperation and alignment between the parties and to help avoid subsequent misunderstandings or disputes.

Arabella Ramage, Legal and Regulatory Director at Lloyd’s Market Association, commented: “In 2024, following a market-wide consultation, updated versions LOF 2024 and LSAC 2024 were released. LMA5654 was also published at that time to encourage greater certainty around the use of LOF between shipowners and underwriters. Subsequent feedback from stakeholders indicated that additional clarity would improve uptake of the clause. The LMA and ICS have therefore refined the wording and produced accompanying guidance to promote consistent understanding across the market.”

“The LMA and ICS recognise the importance of clarity in the LOF Default Agreement to encourage confident use of the LOF, which is the right and appropriate contract when a ship is in danger. The refinements now made and the publication of accompanying guidance reflect the importance both organisations place on stakeholder feedback and the need to ensure an understanding of the provisions available for inclusion in the shipowners’ hull policy that support the use of LOF.”

LMA5654A and the Accompanying Guidance are now available on the LMA website and Lloyd’s Wordings Repository.