If you run a restaurant or bar, you've probably heard the term "dram shop" thrown around by your landlord, insurance agent, or legal team. It sounds archaic because it is. But the legal principle behind it is very much alive, and understanding it is critical to protecting your business from alcohol-related liability.
At Anchor Insurance, we help restaurant and bar owners navigate liquor liability coverage by explaining exactly what you're exposed to, how dram shop laws work in your state, and how to structure insurance that actually protects you. This post breaks down "dram shop exposure" in plain English so you can make informed decisions about your coverage.
What is a "Dram Shop" and Where Does the Term Come From?
A "dram" was a unit of measurement for spirits in 18th-century England. A "dram shop" was simply a place that sold alcohol by the dram - essentially, a tavern or bar.
Today, the term refers to laws that hold alcohol-serving establishments liable for damages caused by intoxicated or underage patrons they served. If you serve alcohol to someone who is visibly intoxicated or under 21, and that person causes harm to themselves or others, your business can be held financially responsible for injuries, property damage, or even wrongful death.
This is separate from the individual's own liability. Even if the drunk driver is sued, the bar or restaurant that served them can also be sued under dram shop statutes.
How Dram Shop Laws Work (and Why They Vary by State)
Dram shop laws are state-specific, and the rules vary widely. Some states have strict liability statutes, while others make it harder to win a dram shop claim. Here's what you need to know:
States with Dram Shop Laws
Most states have dram shop statutes that allow third parties (people harmed by an intoxicated patron) to sue the establishment that served the alcohol. These laws typically require the plaintiff to prove:
- The establishment served alcohol to someone who was visibly intoxicated or underage
- The intoxication was a proximate cause of the injury or damage
In some states, the standard is strict: if you served someone who was clearly drunk and they caused an accident, you're liable. In others, there's more wiggle room to argue foreseeability or causation.
States Without Dram Shop Laws
A handful of states (like Virginia, South Dakota, and Nevada in certain contexts) do not have dram shop statutes, meaning it's much harder for third parties to sue bars or restaurants for overserving. However, this does not mean you're off the hook. You can still face negligence claims under common law or administrative penalties from state alcohol control boards.
Social Host Liability vs. Dram Shop Liability
Some states also have "social host" laws that apply to private individuals hosting parties, not just commercial establishments. As a business owner, you're generally held to a higher standard than a social host because you're in the business of selling alcohol.
Common Dram Shop Scenarios That Lead to Claims
Understanding how dram shop claims arise can help you see where the exposure lives in your day-to-day operations. Here are the most common scenarios:
1. Overserving a Visibly Intoxicated Patron
A guest has clearly had too much to drink - slurred speech, unsteady gait, aggressive behavior - but your bartender continues to serve them. They leave, drive home, and cause a serious accident.
The claim: The injured third party sues your bar for negligently serving someone who was obviously drunk.
2. Serving a Minor
Your server fails to check ID (or accepts a fake ID) and serves alcohol to someone under 21. That minor gets into a car accident on the way home.
The claim: The victim's family sues your restaurant under dram shop law for serving a minor, which is illegal in all 50 states.
3. Continuing Service After Last Call or Licensing Hours
You keep serving drinks past your licensed hours or after you've announced last call. A patron leaves intoxicated and injures someone.
The claim: Plaintiffs argue you violated alcohol service regulations, which strengthens the case that you were negligent.
4. Serving Someone Who Later Harms Themselves
In some states, the intoxicated person themselves (or their estate) can sue the establishment if they're injured. For example, if someone you overserved falls down stairs and suffers brain damage, they might sue you for contributing to their intoxication.
This is less common but possible in certain jurisdictions, particularly where first-party dram shop claims are allowed.
What Liquor Liability Insurance Covers (and What It Doesn't)
Liquor liability insurance is designed to cover claims arising from serving, selling, or furnishing alcohol. Here's what it typically includes:
What's Covered
- Bodily injury and property damage caused by an intoxicated or underage patron you served
- Legal defense costs, even if the claim is groundless (this can be the biggest expense)
- Settlements or judgments up to your policy limits
What's NOT Covered
- Assault and battery (usually excluded or requires a separate endorsement)
- Intentional acts or criminal conduct by your staff
- Injuries to the intoxicated person themselves (in states where first-party claims aren't allowed)
- Violations of licensing laws (fines and penalties are not insurable in most states)
At Anchor, we help you understand these exclusions and add endorsements (like assault and battery coverage) where needed and available.
Frequently Asked Questions
Do I need liquor liability insurance if I only serve beer and wine?
Yes. Dram shop laws apply to any establishment that serves alcohol, regardless of whether you serve beer, wine, or full liquor. The risk is lower than a full bar, but it's not zero. We'll cover this in detail in a separate post about beer-and-wine-only operations.
Does general liability insurance cover dram shop claims?
No. Standard general liability policies specifically exclude liquor liability. You need a separate liquor liability policy or endorsement. We'll explain the coverage gaps in our comparison post (Liquor Liability vs General Liability).
What if my state doesn't have a dram shop law?
Even without a statute, you can still face common-law negligence claims or administrative penalties. Liquor liability insurance is still strongly recommended, and often required by landlords or lenders regardless of state law.