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What is an Indemnification Carve-Out?

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Used in a sentence

The Daily Ledger · Markets

Except in cases of gross negligence, the vendor’s liability is subject to the standard indemnification carve-outs.

The reader highlighted one clause — on the page or in a PDF. Clicked explained the legal term “indemnification carve-outs” in plain language:

Explained in three depths

Same facts, different vibe — Slang mode 😎

The Clicked way

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Overview

An indemnification carve-out is an exception written into a promise to cover losses. The contract sets rules for who pays when things go wrong, and the carve-out lists where those rules don't apply: fraud, gross negligence, or willful misconduct.
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Overview

A carve-out means the promise has an asterisk. "We'll cover your losses," unless you did something truly bad. Fraud, gross negligence, willful misconduct: that's the asterisk list. 😎

A quick take — often all you need.

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Detail

Indemnification means one party promises to pay for certain losses the other party suffers. Carve-outs cut exceptions into that arrangement, in two directions. Some carve out of the duty, so the vendor won't cover losses the customer caused itself. Others, the ones lawyers fight over, carve out of the liability cap: the contract may cap the vendor's total exposure at the fees you paid, but carved-out items such as fraud, IP infringement, or a confidentiality breach sit outside the cap with unlimited exposure. That's why the carve-out list matters more than the cap itself, since a $1M cap means little if data-breach liability escapes it. Find the cap first and then the exceptions to it, because that is the real risk picture.
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Detail

The negotiation is a dance. Vendor: "our liability is capped at the fees you paid us." Your lawyer: "fine, except fraud, data breaches, and stealing our IP, which are uncapped." The whole fight is over which sins stay under the cap and which get carved out. A cap with no carve-outs means the vendor can burn your house down for the price of the subscription, while a cap with too many carve-outs signs the vendor up for unlimited risk. Somewhere in the middle, two exhausted lawyers shake hands. 😎

Want more? One click digs deeper.

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Analogy

Car insurance. The policy promises to cover your crash, but the exclusions page says not if you were street racing. The exclusions page is the carve-out: the promise holds, except for the listed sins.
Deepest level reached.
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Analogy

Your parent lending you the car: "If anything happens, I'll handle it, unless you were racing, drinking, or let Kevin drive." The Kevin clause is a carve-out.
Deepest level reached.

Unfamiliar concept? A real-world example makes it click — fresh analogies on tap.

AI explanations may contain errors · Not professional advice

Formal definition — The same term, explained the usual way

Indemnification carve-outs are negotiated exceptions to indemnity obligations or to limitations of liability, whereby specified categories of claims — typically fraud, gross negligence, willful misconduct, infringement of intellectual property, or breach of confidentiality — are excluded from the scope of indemnity protections or from applicable liability caps, thereby preserving uncapped exposure for the enumerated conduct.

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