Dram shop liability 101
If you sell or serve alcohol, you run a dram shop. Use this guide to understand dram shop laws and liquor liability so you can focus on growing your business.
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.
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.
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:
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:
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.
The short answer? Probably not. As a small business owner, you may already have the following kinds of insurance:
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 is a kind of insurance coverage designed to protect small businesses and event hosts from liability related to their customers’ (or 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:
While liquor liability insurance provides coverage in cases of third-party injury, it contains some exclusions:
To make sure you’re protected, ID patrons and protect your property with insurance, too.
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:
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.