The Lloyd’s Market Association (LMA) has issued LMA5654A, a revised version of the Lloyd’s Open Form (LOF) Default Agreement first published in September 2024, following market feedback and the first scheduled review of the clause. The update comes amid growing scrutiny of emergency response in marine casualties and ongoing debate over the role of LOF in modern salvage.
The revision delivers on the review that was anticipated when the clause was originally launched and reflects increasing attention from insurers and shipowners on how quickly and effectively serious marine incidents are managed.
Alongside the revised clause, the LMA has released an accompanying Guidance Note intended to assist shipowners, brokers, underwriters and other stakeholders in interpreting and applying LMA5654A. Both documents were produced in co‑operation with the International Chamber of Shipping (ICS), signalling a coordinated attempt by the insurance and shipping sectors to promote greater consistency in market practice.
The guidance aims to clarify how the clause operates across different casualty scenarios and how it can be incorporated into hull policies to support the use of LOF where appropriate.
Clarifying LOF’s role in emergency salvage
LMA5654A is designed to create contractual certainty between shipowners and insurers that LOF is encouraged as the contract with salvors where a ship is in danger and immediate expert salvage assistance is required. LOF remains a long‑established no‑cure‑no‑pay contract agreed directly between shipowner and salvor, incorporating the Lloyd’s Salvage Arbitration Clauses (LSAC), which govern the arbitration process for determining salvage awards.
Within the market, LOF has traditionally been viewed as the default emergency salvage contract because it allows urgent services to begin without extended negotiation, with any award determined later under a defined arbitration framework. In recent years, however, some parties have explored alternative commercial salvage agreements in certain circumstances, seeking more predictable costs and bespoke terms.
Against that backdrop, LMA5654A is positioned as a way to preserve the advantages of LOF in genuine emergencies while giving underwriters clearer policy language on when its use is anticipated and supported.
Differentiating immediate and non‑immediate danger
The clause also addresses situations where the danger is not considered immediate, encouraging dialogue between insureds and insurers on the most appropriate contract for the salvage operation. This is intended to promote cooperation and alignment between the parties and reduce the risk of later disagreements or disputes.
In practice, the distinction between immediate and non‑immediate danger is becoming more relevant as casualty profiles evolve, from engine failures in confined waters to structural damage or fires that may allow time to consider alternative contractual arrangements. Clearer expectations around when LOF is encouraged and when other options may be considered are likely to attract particular interest from hull underwriters, brokers and claims teams focused on dispute prevention and coverage certainty.
Wider risk landscape for marine insurers
The updated clause and guidance sit against a broader risk backdrop for the marine market. The trend towards larger, more complex vessels has increased values at risk in single incidents, while hazardous or technically challenging cargoes have made some salvage operations more complex. Environmental and reputational risks are also heightened where casualties occur in sensitive areas or on critical trade routes.
In this context, frameworks that support rapid and defensible salvage decision‑making are gaining strategic importance for both shipowners and insurers. Clarifying how LOF use can be supported within hull policies is intended to reduce post‑casualty friction, particularly where stakeholders might otherwise hold differing expectations about salvage strategy.
Industry bodies emphasise clarity
Commenting on the changes, Arabella Ramage (pictured), legal and regulatory director at the Lloyd’s Market Association, noted that updated versions of LOF 2024 and LSAC 2024 were released in 2024 following a market‑wide consultation, alongside the original LMA5654 clause aimed at encouraging greater certainty around LOF use between shipowners and underwriters.
She said subsequent stakeholder feedback indicated that further clarification could improve uptake of the clause, prompting the LMA and ICS to refine the wording and issue additional guidance to support a more consistent understanding across the market.
Meanwhile, Kiran Khosla, principal director of legal at the International Chamber of Shipping, said the two organisations recognise the importance of clarity in the LOF Default Agreement to encourage confident use of LOF when a ship is in danger. She added that the refinements and publication of guidance reflect the weight placed on stakeholder feedback and on ensuring understanding of the provisions that can be included in shipowners’ hull policies to support the use of LOF.
