When a contract lands on a general counsel's desk after AI drafting, the first thing they do is look for what's not there. Large language models are excellent at synthesizing boilerplate and following templates, but they consistently miss or mangle the provisions that actually protect you when things go wrong. A 2024 survey of in-house lawyers found that 67% of AI-drafted contracts required material revision before execution—most often in liability, payment, and termination clauses. The gaps aren't hypothetical. They're the difference between a dispute you can manage and one that bankrupts you. This post walks through the seven liability gaps lawyers spot in AI contracts, why each matters, and the exact steps to close them—whether you're using a general-purpose LLM, a specialized contract platform like Orin, or manual review with DocuSign. Gap 1: Indemnification asymmetry (who pays for whose mistakes) This is the first thing in-house counsel looks for, and it's where AI makes its most consistent error: it drafts mutual indemnification clauses that sound balanced but load risk onto you. What AI typically generates: "Each party shall indemnify the other against claims arising from its breach or negligence." Sounds fair. It's not. If you're a service provider and the client is a large enterprise, you end up defending claims that originated with the client's own systems or people—claims you can't possibly predict or prevent. What lawyers rewrite it to: Indemnification for your breach and your gross negligence only (not ordinary negligence). Client indemnifies you for their misuse of the deliverable, third-party claims on their data, or breach of their representations. Mutual indemnification only for IP infringement (where exposure is symmetric). A clear carve-out: you don't indemnify the client for their own negligence or mismanagement. AI almost always drafts the first version as mutual-and-equal because that's what's in 80% of templates. But equal is often wrong. If you're the weaker party in the deal, a symmetric indemnity favors the other side. Gap 2: Liability caps (or the absence of them) AI often either omits liability caps entirely or caps liability at contract value—which sounds protective until you calculate the risk. The problem: If you're a SaaS vendor charging ₹2L/year and your integration error costs the client ₹50L in lost revenue, an uncapped liability clause means you owe ₹50L. A cap at contract value (₹2L) is better, but it still exposes you to 10x the annual revenue from that customer in a single incident. What lawyers enforce: Direct damages cap: Limited to fees paid in the past 12 months (or the contract term, if shorter). Indirect damages exclusion: Neither party liable for lost profits, lost revenue, lost opportunity, or punitive damages—no matter the cause. This is non-negotiable for most vendors. Exception for indemnification: Liability caps often don't apply to IP infringement claims (because the stakes are higher and less predictable). Exception for gross negligence/willful misconduct: Again, carve these out so the other party can't argue you capped liability even for deliberate harm. AI drafts generic caps because it has no context for your actual revenue or risk tolerance. A lawyer fixes this by anchoring the cap to your deal economics and forcing the other party to negotiate explicit exceptions. Gap 3: Payment terms (vague, late, or conditional) AI-drafted contracts often leave payment terms ambiguous: "due within 30 days" without specifying the invoice date, what triggers payment, or what happens if the client disputes a single line item. Typical AI mistake: "Client will pay invoices within 30 days of receipt, provided the deliverable is complete and satisfactory." The word "satisfactory" is a permission to withhold payment indefinitely. What's satisfactory to whom? Who decides? Lawyers add: Objective acceptance criteria: "Deliverable is complete when [specific, measurable condition]. Client has 5 days to dispute in writing, or acceptance is deemed final." Partial payment: If work is delivered in phases, each phase is payable independently. A dispute over Phase 2 doesn't stop payment for Phase 1. Late payment consequences: Interest accrues at 1.5% per month (or the statutory maximum), and you retain the right to suspend work if payment is 30+ days overdue. Non-refundable deposits: If you're contracting with an unknown entity, require a deposit upfront—and make clear it's non-refundable if the client terminates without cause. Currency and payment method: Specify whether payment is in USD, INR, SGD, etc., and which payment methods you accept. Don't let ambiguity create a reconciliation dispute. This is where in-house counsel and finance collide with legal. The finance team sees payment delays; the legal team sees an unenforceable contract clause. AI generates the latter. Gap 4: Termination clauses (no exit ramp for either side) AI often drafts termination clauses that are either abs