IMCC - 26/28 October 2005 DUBLIN IMCC 2005 SALVAGE – SCOPIC CLAUSE HULL & MACHINERY UNDERWRITERS’ PERSPECTIVE

IMCC – 26/28 October Page 2 INTRODUCTION The Salvage Industry, Liability Insurers, and to a lesser extent Property Underwriters wanted to simplify the salvage process after having encountered many difficulties with the Art 14 “special compensation”. In March 99, SCOPIC was launched after protracted negotiations between ISU, International Group of P&I Clubs and the London Market Property Underwriters. The SCOPIC clause was then slightly revised in 2000 and incorporated in the Lloyd’s Standard Form of Salvage, “LOF 2000” which was published on 1 September → 6 years after, what are the effects of the introduction of SCOPIC on the salvage process? → How does it affect our role from a H & M Underwriter’s perspective?

IMCC – 26/28 October Page 3 The main changes with the implementation of SCOPIC are: 1. the SCOPIC fixed & agreed rate 2. the SCOPIC remuneration : - tariff rates + 25% uplift - the 25% discount in favour of Property Underwriters in case Art 13 exceeds Scopic tariff 3. the need to be invoked expressly by Salvors 4. the absence of requirement of threat to the environment 5. the SCR, H&M and Cargo Special Representatives appointment 6. the US$ 3 M guarantee issued in favour of Salvors

IMCC – 26/28 October Page 4 SCOPIC, a step forward for the Maritime Industry :  SCOPIC clause was designed to improve article 14 of the Salvage Convention, 1989 and the numerous difficulties encountered in the past.  SCOPIC clause has worked as an incentive to salve vessels for Salvors, irrespective of potential environmental damages. It allows salvage remuneration even when salvage values are low or prospects of success are poor. → All the Maritime Community benefits from this measure.  SCOPIC is a flexible provision as both Owners and Salvors are entitled to terminate the SCOPIC service by giving written notice.

IMCC – 26/28 October Page 5 On H & M Underwriters side, a progress to be balanced : 1 - The possibility to appoint a Hull Special Representative to monitor the salvage operation on our behalf However : we do not use this possibility that often as :  H & M underwriters appoint already a Surveyor  SCR is already appointed by the Shipowner and his duty is to perform his functions on behalf of all parties and their insurers. His final report shall be forwarded to the interested persons. In practice, we regret not to receive more daily information/SITREPS from the SCR. In any case, should a major casualty occur, then with no doubt we would appoint a H & M special representative + our H & M Surveyor.

IMCC – 26/28 October Page 6 On H & M Underwriters side, a progress to be balanced : 2 - the 25% discount on Art 13 if the Salvor triggers the SCOPIC remuneration inappropriately However : to have the advantage of the 25% discount we must know the amount of the SCOPIC remuneration, ie only when receiving the SCR final report. Therefore, should we wish to negotiate a case swiftly with Salvors, we may have to renounce to the 25% discount. (unless we are sure the case will give rise to a SCOPIC remuneration i.e. SCOPIC Tariff ≥ Art 13). In this sense, we may say that we may not get the advantage of the 25% discount each and every time.

IMCC – 26/28 October Page 7 A step backward on a H & M Underwriter' perspective : 1 – The negotiation process may be slower : We are not in a position, as we said to get the advantage of the 25% discount nor to accept an offer from Salvors until we know the exact SCOPIC tariff assessed by the SCR. As the process of issuing the final SCOPIC assessment can be long (several months after completion of services), the costs & interests can accrue. Moreover, the security given by the P&I Insurers in the ‘ISU 5’ form may give the P&I Insurer the right to be consulted, and to approve/disapprove any negotiated settlement of the Art 13

IMCC – 26/28 October Page 8 A step backward on a H & M Underwriter' perspective : 2 - we may not negotiate with Salvors directly in certain cases : For instance, we had a case in which the P&I Insurer settled the entire SCOPIC tariff to Salvors and several months after contacted H&M & Property underwriters to get the Art 13 contribution from them. (It was a situation in which art 13 was very low as there was almost no salved fund). 3 - the lack of information from SCR although SCR has the duty to report to the Leading Hull Underwriter in case no Hull Special Representative has been appointed. (SCR Guidelines). However, we do not receive this reporting. We also were never asked to settle the SCR fees !

IMCC – 26/28 October Page 9 A step backward on a H & M Underwriter' perspective : Before SCOPIC, in salvage cases, H&M Underwriters were the only “pilot on board” and managed all the salvage aspects from the beginning up to the remuneration process. Now, this salvage management has been transferred to the P&I Insurer and to some extent H&M underwriters have lost control on the handling of salvage cases. We therefore may have to rely on P&I Insurers on certain aspects whereas our interests may differ.

IMCC – 26/28 October Page 10 SCOPIC is very effective for high risk and/or low values situation. However improvements need to be balanced at least from Property Underwriters' point of view. A first measure on which we may be working on could be to set up a deadline for the SCOPIC assessment to be published, for instance 2 months after termination of services. What is making our situation difficult is that, contrary to the SCOPIC remuneration, Art 13 award is a “volatile” amount, difficult to assess. Reaching a fair agreement with Salvors may be a difficult exercise and we have to resort to Arbitration in numerous cases. What about the shipping community re-considering the Art 13 opportunity and working on a standard pre-agreed remuneration for all sorts of salvage services ? CONCLUSION

IMCC – 26/28 October Page 11 DUBLIN IMCC 2005 SALVAGE – SCOPIC CLAUSE H & M UNDERWRITERS’ VIEW THANK YOU!