The Contract Clause That Cost a Founder $200,000

A founder once showed me a contract after she'd already signed it. She wanted a second opinion "just in case." My eyes went straight to one sentence buried on page nine: an uncapped indemnification clause.

Translated out of legalese, it said this: if anyone ever brought a claim related to the work, even a claim caused by her vendor's mistake, she would personally pay to defend it and cover the damages, with no ceiling.

A few months later, that's exactly what happened. A downstream error, not hers, triggered a claim. Because of that one sentence, she was on the hook. The exposure reached nearly $200,000.

What indemnification actually does

Indemnification decides who pays when a third party brings a claim. A fair indemnity is mutual and bounded: each side covers claims caused by its own conduct, up to a reasonable cap.

An unfair one, the kind that quietly appears in "standard" contracts, makes one party responsible for almost anything, without limit. It reads like boilerplate. It behaves like a landmine.

The fix would have taken one email

Here's the part that still bothers me: the fix was simple, and it was available before she signed. A short redline would have:

• Capped the indemnity at the fees paid under the agreement.
• Tied it to her own negligence, not the vendor's.
• Carved out anything outside her reasonable control.

Any one of those changes would have saved her. All three would have taken a single email and maybe a day's delay.

Why smart people sign these anyway

It's not carelessness. It's three very human things:

1. Momentum. The deal is close, everyone's excited, and no one wants to be the person who slows it down over "legal stuff."
2. The "standard contract" myth. When the other side says "this is just our standard agreement," it sounds non-negotiable. It almost never is.
3. Not knowing what to look for. You can't flag a clause you don't know exists.

What to do before you sign anything

You don't need to become a lawyer. You need a short pre-signature habit:

• Find the liability cap and the indemnification clause. Read them slowly.
• Ask: "If the worst version of this deal happens, who pays, and how much?"
• If the answer is "me, with no limit," that's your redline.

The leverage is always before you sign. Once the ink is dry, you're negotiating from zero.

If you want the full checklist of clauses that cost people the most, grab the free guide: 5 Clauses You Should Never Sign Without Negotiating. If you have a contract in front of you right now, don't guess. Book a strategy call and we'll read it together.