P&I cover and the use of side-agreements to the Lloyd‘s Open Form (LOF)

11 January 2018

The LOF salvage agreement is a well-recognised and well established emergency response contract.  

The use of LOF is widely accepted in the industry and the London Club supports its use in emergency situations.  For about twenty years the Special Compensation P&I Clause (SCOPIC) has been used in conjunction with LOF to encourage salvors to respond in cases of doubt over the availability of sufficient reward under Article 13.  The use of SCOPIC is supported by all International Group P&I Clubs. 

However, there is an increasing trend for Owners and their hull and machinery (H&M) underwriters to enter into arrangements (known variously as side letters, pre-settlement agreementsand side-agreements) which run parallel to LOF and SCOPIC, with a view to managing the H&M underwriters and Owner’s exposure under LOF Article 13.  In certain cases, these side-agreements have either direct or indirect effects on the operation of the SCOPIC clause and, therefore, have a bearing on P&I insurance. 

Members are generally encouraged to submit contracts which may impact upon P&I liability for review by the Club.  This includes situations where an LOF side-agreement is being proposed.  The Club will be able to assess the potential impact of the side-agreement on SCOPIC and alert Members to any provisions that might affect P&I cover. Members are encouraged to contact the Club as soon as discussions regarding side-agreements are raised in order that we are able to provide input at an early stage.