Dram shop insurance

Historically, the term “dram shop” refers to businesses that sold alcohol by the dram, which is a small unit of liquid. A dram shop law is a state liquor regulation that holds businesses responsible for third-party bodily injuries or property damage caused by customers who were served alcohol by the business.

Dram shop insurance, also known as liquor liability insurance, would help cover any medical expenses or legal costs stemming from an incident caused by the on-site alcohol consumption of one of the patrons of a business that manufactures, serves, or sells alcohol.

Let’s say a customer comes into your brewery, drinks a few pints, and then gets in a fight with another patron, breaking that person’s glasses and their nose.

Typically, general liability insurance would cover bodily injuries and property damage that occur in your business, but if alcohol is involved, that’s when dram shop insurance comes in.

Dram shop insurance covers legal liabilities, including:

If a customer gets inebriated at your bar and hurts another patron, dram shop liability insurance will handle the injured person’s medical bills, including urgent care visits and prescription drugs.

This coverage includes drunk driving accidents where the injured party blames your business for overserving a customer.

Your dram shop policy will help cover the cost of repairing or replacing someone’s property that was damaged or stolen by a person who became intoxicated at your restaurant.

Suppose a lawsuit is filed over an incident caused by a customer under the influence. In that case, dram shop insurance will help with your defense expenses, such as attorney’s fees, settlements and judgments.

Some businesses might need additional protection. For example, the owner of a nightclub that’s open until 4 a.m. should make sure their policy includes assault and battery coverage to protect against drunk customers looking for trouble.

Curious about special coverage insurance needs? One of our licensed agents can help you determine which policies are right, depending on your type of business.

While most states have dram shop laws, there are a handful that are the exception. In these states, the intoxicated person who caused bodily injuries or property damage is legally responsible for the damage.

States without dram shop laws include:

• Delaware
• Kansas
• Louisiana
• Maryland
• Nevada
• South Dakota
• Virginia

Even without dram shop laws, some of these states have specific liquor-related stipulations, such as Maryland, where host liability laws hold adults who knowingly serve alcohol to minors on their property accountable for any damage incurred.

Whether you own a bar in New York or a distillery in California, the dram shop laws are going to be very different from state to state. Depending on where you live, you’ll see variations in liability, scope, proof requirements, or restrictions for first or third-party claims.

Here are some examples of state dram shop laws:

The dram shop law in Iowa holds businesses licensed to sell or serve alcohol accountable for third-party injuries caused by intoxicated customers if they were visibly intoxicated at the time of sale.

In Illinois, the dram shop law makes businesses that sell alcohol strictly liable for injuries or property damage caused by an intoxicated person who was served alcohol.

Strict liability means that the injured party doesn’t have to prove that the vendor knew the patron was intoxicated when they were served.

The law in Texas states that a patron must be so obviously intoxicated that they present a clear danger to themselves and others. However, the injured party must prove that the establishment was negligent in its actions when serving the intoxicated party.

The Texas Alcoholic Beverage Code also contains a safe harbor defense, offering protection to businesses that properly train employees to identify intoxicated patrons and refuse to serve them.

Missouri’s dram shop law holds licensed businesses accountable for injuries if they knowingly serve alcohol to a minor or someone who is visibly intoxicated, resulting in that person causing harm.

This law only applies to businesses where alcohol is sold for consumption on premises, such as bars, nightclubs, and restaurants.

The dram shop law in Indiana holds businesses or people responsible for injuries caused by a person whom they served alcohol to, if there’s proof that the server knew the person was visibly intoxicated and that the intoxication was the proximate cause of the damage.

In Florida, the dram shop law holds businesses liable for injuries caused by intoxicated patrons only for two specific reasons: serving a minor or serving a person known to be habitually addicted to alcohol.

A business is generally not liable for injuries caused by a patron who is served alcohol if they’re an adult and not a habitual drunkard, even if they’re visibly intoxicated.

The dram shop law in Alabama holds an establishment accountable if it knowingly sold or served alcohol to a minor or visibly intoxicated individual who then caused injury or damage.

Dram shop liability insurance isn’t legally required, but it’s highly recommended for any business distributing, serving, or selling alcohol—especially if your business is in a state with dram shop laws.

It might also be required to get approved for a liquor license, sign a commercial lease, or qualify for a business loan.

Keep in mind, even if you’re not in a state with dram shop laws, you can still be sued over the actions of an intoxicated patron. Dram shop insurance can cover your legal expenses, including attorney’s fees, so even if the judge rules in your favor, you’re not stuck with a hefty legal bill.

Aside from their names, there’s essentially no difference between dram shop and liquor liability. While dram shop liability directly refers to the laws that hold alcohol-selling businesses responsible for incidents stemming from their intoxicated patrons, liquor liability is the broader concept of legal accountability for injuries and damages caused by alcohol-fueled incidents.

At the end of the day, whether you’re talking about insurance coverage or liabilities for businesses that serve booze, they’re both correct.

If your small business sells, serves, or produces alcohol, dram shop insurance will handle most of the claims—but it doesn’t cover every risk. Here are a few of the incidents that a liquor liability insurance policy doesn’t include:

If one of your bartenders goes on social media and accuses the mayor of getting in a drunken fight at your tavern, and the mayor sues you for libel or slander, a general liability insurance policy could help protect you in court.

If an intoxicated patron throws a glass and breaks several bottles of liquor and the custom sign above your bar, dram insurance would not cover the damage. That’s where commercial property insurance can step in to help pay for the cost of repairing or replacing your business property when it’s damaged or stolen.

Many businesses bundle property coverage with general liability insurance in a business owner's policy (BOP). This option is typically less expensive than if you were to purchase the two policies separately.

Insurance can’t protect you when minors are knowingly served alcohol in your establishment, but you might have legal recourse if the minor presented a credible-looking fake ID. Be sure to train your employees to card every guest and know how to spot fake IDs.

If your business doesn’t serve or sell alcohol, but you allow adult beverages on your premises, host liquor liability insurance is strongly recommended. Typically included in your general liability policy, this coverage protects you from liquor-related lawsuits.

For example, if your office hosts a special event where an employee has several beers and gets into a car accident, host liquor liability insurance would pay for your legal bills and any medical expenses if there are victims involved.

Get free quotes from top-rated insurance providers by filling out our easy online application. You can also speak with a licensed insurance agent, who can answer questions and help you find affordable coverage.

Once you find the right policies for your small business, you can begin coverage in less than 24 hours and get a certificate of insurance (COI) for your small business.