Liquor sales are great for attracting customers or spicing up a special event. But, as you might know, when customers are drinking–things can happen. Customers can fall off stools or trip on steps…or get in fights or a car wreck.
But can you really be held responsible if something like that happens after you sell someone alcohol? Unfortunately, you can. And your typical business insurance coverage won’t protect you from these alcohol-related incidents. You can’t count on your business owners policy or property insurance to get you out of those binds, especially if your state has dram shop laws.
The good news? There is specific liquor insurance that can protect you if you sell or serve alcohol on a regular basis. It’s called dram shop or liquor liability insurance, and we’ll go into exactly what it is, where you can get it and how much it costs. So let’s get going!
What is Dram Shop Insurance?
Dram shop insurance protects businesses that make, sell or serve alcoholic beverages. It’s also called liquor liability insurance. “Dram shop” is an old word for bar or tavern, where alcohol was typically served by the dram (a small amount of alcohol).
Today you’ll mostly see this term when you’re reading about dram shop laws. These are state laws that make business owners liable if they serve alcohol to an individual who later causes an injury or death.
Even if your state doesn’t have a dram shop act, it’s still a smart choice to get insured. You’ll likely need dram shop liability coverage if you’re looking to get a liquor license for your small business. And landlords, property owners, and lenders might also ask you to get liquor liability coverage.
Which States Have Dram Shop Laws?
Currently, 43 states have dram shop laws, meaning your business could take the fall if you sell alcohol to someone who later causes a bodily injury or death. These states include:
- District of Columbia
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- West Virginia
The only states without dram laws are:
- South Dakota
Even if your state doesn’t have dram shop laws, you can still get sued and taken to court because of an intoxicated individual’s actions. You’ll have a better chance of winning the case if your state doesn’t have dram shop laws, but you’d still have to deal with court and other legal fees. That’s why liquor liability insurance is still a good idea regardless of your state’s rules.
What Exactly Does Dram Shop Insurance Cover?
An intoxicated customer can quickly become an intoxicated driver. If they hurt themselves or someone else in a car accident or fight, you might find yourself with an injury lawyer breathing down your neck.
Dram shop insurance can cover things like:
- Assault and battery: A drunk customer might start a fight and hurt another patron.
- Personal injuries: Intoxicated patrons could also trip and hurt themselves.
- Injuries to others: Others get hurt because of drunk driving or something else the intoxicated person did.
- Property damage: If your customer drives drunk and wrecks someone else’s car, liquor liability insurance helps with repair costs.
- Legal fees and settlements: These are your costs for defending yourself against the lawsuit or paying to settle it before it goes to court.
- Medical bills: If you’re found liable, this insurance helps pay for the other person’s medical expenses.
Some of these may look familiar if you hold a general liability policy. But general liability insurance doesn’t cover alcohol-related property damage or personal injury if your business relies on making or selling alcohol. However, insurance companies may sell it as an add-on to your coverage or as part of an insurance program.
What’s Not Covered by Dram Shop Insurance?
Like all insurance, your dram shop or liquor liability insurance coverage has important exclusions that you need to consider.
Dram shop coverage is a type of third-party insurance coverage, so it won’t pay for damages to your personal property or your employee's medical bills if they’re hurt. Those should be handled by equipment insurance and workers' compensation.
Dram shop coverage can’t protect you if you serve patrons below the legal drinking age. And, it won’t help with cases like slander, libel, or anything outside of property damage and bodily harm. So, if your business is blamed publicly for causing an alcohol-related incident, liquor liability won’t have your back if you sue the people publicizing it.
Who Needs Dram Shop Insurance?
Dram shop insurance is a must for commercial establishments regularly serving alcohol, like:
- Liquor stores
- Bars and taverns
- Convenience stores
- Grocery stores
Maybe you’re not the type of business to serve alcohol regularly. However, some states hold you accountable as a social host if you serve alcohol at business parties or special events.
If that’s the case for you, you’ll need host liquor liability coverage. It's a great option for businesses that are occasionally at risk of alcohol-related incidents. Think holiday parties, fundraising dinners, milestone celebrations, and other company events typical for many small businesses. Yeah, you could be opening yourself up to liabilities if you serve alcohol and someone gets into an accident on the way home or gets hurt another way while there’s alcohol in their system.
Before you start shopping for a new policy, check if your general liability policy already includes host liquor liability coverage. They usually do. If you’re not sure whether yours does, take a look at your insurance declarations page or ask your insurance broker.
If yours doesn’t, see if host liquor coverage is available as an add-on. You could also look into event liquor coverage for specific events. Event liquor liability insurance only lasts a couple of days, just enough time to keep your guests and your business safe.
How Much Does Dram Shop Insurance Cost?
The cost of dram shop insurance varies between states and depends on your industry, claims history, and exposure (if you sell less liquor, you’re less exposed to risks). But, you can expect to find dram shop policies starting at about $400 dollars annually for an aggregate limit of $300,000 or more.
When you get a liquor liability insurance quote, take special note of your deductible and coverage limits. You need to make sure they align with state statutes. For example, Massachusetts requires minimum coverage limits between $250,000 to $500,000 to receive a liquor license. So, you’ll need a policy that fits the bill.
Where To Find Dram Shop Insurance
You can find dram shop insurance at some major insurance providers. But, if you’re not keen on shopping for a new policy yourself, feel free to ask your current insurance broker. Even if they don’t specialize in liquor liability, they’re likely to have some A+ referrals for you. And they’re likely to get you the best deal.
How To Prevent Liquor Liability Claims
A liquor liability lawsuit can cost you serious money, especially if there’s a death involved, and leave a stain on your business reputation. There are ways to limit your risks. You should:
- Train your employees to handle intoxicated customers and spot underage drinkers.
- Get your liquor licenses and permits in order.
- Keep tabs on how much your customers are drinking and limit your serving sizes.
- Cut out activities that encourage excessive drinking, like late happy hours or late closings.
And if you’re hosting an event, hire a reputable, licensed vendor with experience. Ask for proof of their liability coverage and ask them to list you as an additional insured on their policy.
As a social host, you’re liable simply for allowing your guests to drink, even if the drinks were free or they brought their own. So, try your best to keep everyone in check. You can use a cash bar, so guests are less likely to overindulge or offer a bus or cab service to lower the chance of drunk driving.
Dram Shop Insurance is a Must if You're Selling Alcohol
Dram shop coverage is essential if you make, sell, or serve alcohol, even if you’re not bound by dram shop laws. It keeps you from paying completely out of pocket if one of your customers hurts themselves or others, or damages property.
You can encourage your patrons to drink responsibly, but there’s always the chance of a customer going overboard. Don’t go down with them! You can protect your business from alcohol-related incidents with a comprehensive liquor liability policy.
Even if you’re not in the business of doing these things but are just having a company event where there’s alcohol involved—whether it’s BYOB or you’re serving, it’s still a wise investment to have a host liquor liability insurance policy.