Do you sell alcohol at your restaurant, distillery, or dry goods store? If so, you know that you probably need insurance to cover your shop liability. After all, someone could always slip and fall on freshly cleaned floors, or have one too many sips at a tasting and knock into another patron. When alcohol and liquor are part of your business, it’s better to be safe than sorry.
On a related note—did you know that by law you could be held liable if one of your patrons drives drunk after leaving your establishment?
If you’re a small business owner who serves or sells alcohol, it’s important to get familiar with dram shop liability laws. These laws spell out a business’s liability in the event that a customer goes on to injure themselves, hurt someone else, or damage property. This guide will explain everything you need to know about dram shop liability.
Wait. What’s a dram shop?
At this point, you may be wondering what dram shop laws have to do with your small business. If you sell or serve alcohol, you run a dram shop.
Let us explain.
A quick history lesson: In the 18th century, alcohol was sold by the dram—a unit equivalent to ¾ of a teaspoon1. The bars and taverns that sold alcohol were appropriately called dram shops. Now, although the name no longer makes sense, dram shop laws still apply to businesses that sell alcohol.
Dram shop laws
You’ve seen it in movie after movie: a regular goes into a bar after a tough day demanding a shot, and then another, and another. The bartender tries to say “no,” but their patron insists. The bartender agrees—but only after taking their customer’s car keys.
They aren’t doing this only out of the kindness of their heart—should the intoxicated individual drive drunk and cause an accident, the bartender and establishment that served them could be held liable.
Dram shop laws were enacted to prevent bars, stores, and other businesses from selling alcohol to two groups:
- People who are already visibly intoxicated
It is considered a crime to serve either of these groups. Thanks to dram shop laws, businesses can face lawsuits from multiple angles if they serve a minor or drunk person who goes on to injure themself or someone else.
Imagine the drunk patron in a scenario like the above. Should the person leave the establishment intoxicated, the so-called “dram shop” could be sued:
- By the patron if they go on to injure themself (depending on your state’s laws)
- By someone the patron injures (this person can also sue the patron)
If your business failed to ask for identification or served alcohol to someone who could barely speak their order straight, you could be held liable under dram shop laws2.
Doesn’t my insurance cover that?
The short answer? Probably not. As a small business owner, you may already have the following kinds of insurance:
- General liability insurance in order to protect against client and third-party claims of property damage, bodily injury, and personal injury
- Professional liability insurance in order to protect against claims of errors, omissions, or mistakes related to your services
While serving an underage or intoxicated patron may seem like a mistake or error, most insurance policies exclude coverage for bodily injury and property damage related to alcohol consumption. (Check with your insurer to make sure you understand the specifics of your policy.)
So what can you do? You can take out a liquor liability insurance policy.
Liquor liability insurance
Liquor liability insurance is a kind of insurance policy designed to protect small businesses and event hosts from liability related to their customers’ (or guests’) alcohol consumption.
- If you sell alcohol, liquor liability insurance can protect you against liability in the event that a customer injures themself or someone else (with some exceptions).
- If you’re serving free alcohol, you may need liquor liability insurance as well. Similar to dram shop laws, social host laws hold party and event hosts liable for damages related to guests’ alcohol consumption.
Depending on the specifics of your policy, liquor liability insurance can protect you from a variety of potential liabilities related to your customers’ alcohol consumption:
Should a customer you served get on their motor scooter and careen directly into a tree, you could be held liable, according to dram shop law.
3rd-party property damage
Intoxication can cause people to lose coordination—and the contents of their stomachs. Should one patron scarf in another’s handbag, you could be held liable for the damaged property.
Should a customer drive drunk and injure a third party in a car accident, that person could sue you. Even if you were the first stop on the customer’s bar crawl, without insurance, you would be responsible for your own legal costs, even if you’re ultimately cleared of wrongdoing.
Should a guest at your bar drink too much and require a trip to the ER, you could be held liable.
Without liquor liability insurance, you may find yourself in court or making payouts thanks to your patrons’ excessive drinking. With it, you may be able to avoid paying a dram shop claim that could severely impact business—depending on your policy and the specifics of the incident.
What isn’t covered by liquor liability insurance?
While liquor liability insurance provides coverage in cases of third-party injury, it contains some exclusions:
- Underage drinking. It is a crime to sell minors alcohol. Almost all insurance policies contain exclusions for criminal offenses.
- Damage to your property. Liquor liability insurance provides coverage from in case of damage(s) to third parties. Your renter’s insurance should cover your store itself, while a commercial property policy can protect specific equipment.
To make sure you’re protected, ID patrons and protect your property with insurance, too.
A toast to insurance
Are you a small business owner realizing that dram shop laws may put your bottom line at risk? Even if you’re careful of who you serve, it can be difficult to tell if a patron is intoxicated. To protect yourself from risk:
- Take out liquor liability insurance to provide coverage in the event that a patron injures themself or someone else.
- Be sure to ID your customers and avoid serving anyone underage.
- Make sure you’re protected from other risk with general liability insurance, commercial property insurance, and renter’s insurance.
- Consider special event insurance if you’re serving alcohol for a party or event.
Don’t have the small business insurance you need to protect yourself from liability? Thimble’s revolutionary, on-demand coverage makes it easy to get insured: choose from hourly, daily, or monthly policies. Whether you’re hosting a weekend pop-up, taking your wares to a farmer’s market, or signing a new lease for your business, find a general liability and professional liability insurance policy that works for you. And, if you’re catering an event or attending a festival as an alcohol vendor, add on a special event insurance policy to cover your liquor liability.
From our website or the Thimble app, you can take out a policy in under 60 seconds. It’s easy to make changes on the fly. Add Additional Insureds or get additional Certificates of Insurance whenever you need, from wherever you are, all for free.
As a small business owner, it’s important to grow and protect your business. With insurance, you can focus on that, knowing you’re protected from risk. Salud!
Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.