Your client sees only the watermarked preview
When the watermark is on, every photo in a selection gallery is served with the mark applied. Even saving the image with a right-click gives the watermarked version. Only you can set exceptions: turning the watermark off completely or removing it from your recommended photos.

A failed watermark blocks the photo
If your watermark is on and applying it fails, we hold that file back instead of showing your client a clean preview. That's on purpose: a missing photo is better than a full frame leaking out.
You hand over unwatermarked files on purpose
Your client gets files without a watermark only from a delivery gallery, which you create after editing. It's a separate gallery type, with no selection and no watermark.