What Is Dram Shop Insurance?
Dram Shop Insurance refers to liability coverage specifically designed for businesses that manufacture, sell, or serve alcohol. Named after the historical term “dram shop” — a shop where spirits were sold by the dram (a small measure) — this policy helps safeguard businesses from claims arising when an intoxicated patron causes injury or damage after being served alcohol on your premises.
Unlike general liability policies, which might exclude liquor-related incidents, Dram Shop coverage is tailored to handle situations like:
A customer leaving your bar intoxicated and causing a car accident
A fight breaking out due to excessive alcohol consumption
A third party filing a lawsuit for injuries caused by an inebriated guest you served
Without this protection, a single claim could lead to legal fees, settlements, and even bankruptcy.
Who Needs Dram Shop Coverage?
If your business is involved in the sale or service of alcoholic beverages, you likely need Dram Shop insurance. Common business types that should carry this coverage include:
Even if your establishment only serves alcohol occasionally, such as during private events, having proper liquor liability insurance can be vital to your long-term protection.
Why General Liability Isn’t Enough
Many business owners assume that a standard commercial general liability (CGL) policy will cover all types of accidents. However, most CGL policies specifically exclude alcohol-related incidents. That means if a patron becomes intoxicated at your establishment and harms someone else or damages property, your general policy likely won’t cover it.
Dram Shop liability insurance fills that critical gap, ensuring that you’re covered where it matters most. This coverage not only handles legal costs and settlements but also helps protect your reputation in the event of a public incident.
Legal Requirements and State Laws
Laws regarding alcohol service vary by state, and some have strict Dram Shop liability laws that hold alcohol-serving businesses responsible for the actions of intoxicated patrons. States like Texas, California, USA , and New York have well-established laws allowing third parties to sue bars or restaurants if they can prove the establishment served an already intoxicated individual who then caused harm.
Even in states where such laws are less aggressive, it is still wise — and often required — to carry liquor liability coverage as part of your risk management plan. In some jurisdictions, proof of this insurance is necessary before obtaining or renewing your liquor license.
What Does Dram Shop Insurance Cover?
Dram Shop policies can be tailored to suit your business needs. Typical coverages include:
Bodily injury: Covers injuries to third parties caused by an intoxicated customer
Property damage: Pays for property that’s damaged due to an alcohol-related incident
Legal fees: Covers the cost of legal defense, court fees, and settlements
Assault and battery coverage: Optional add-on to protect against fights or physical altercations
Depending on your state’s regulations and your establishment’s risk profile, you may also choose higher policy limits or expanded protection for special events.
The Cost of Dram Shop Insurance
The cost of Dram Shop coverage depends on several factors, such as:
On average, small businesses like restaurants or bars can expect to pay anywhere from $900 to $2,500 annually for a standalone liquor liability policy. However, this investment is minimal compared to the potential cost of a single claim, which can easily exceed six figures.
Combining Dram Shop Insurance with Other Coverages
While Dram Shop liability focuses on alcohol-related risks, it should be part of a broader commercial insurance package. Consider pairing it with:
General liability insurance
Commercial property insurance
Workers’ compensation
Business interruption coverage
Cyber liability (for POS systems and online ordering)
Bundling policies can not only improve your coverage but also reduce premiums through package discounts.
Risk Management Tips to Reduce Liability
Carrying Dram Shop insurance is essential, but prevention is equally important. Consider implementing these practices to reduce your business’s risk:
Train staff in responsible alcohol service (e.g., TIPS or ServSafe Alcohol certification)
Post visible signage reminding guests to drink responsibly
Establish and enforce policies about refusing service to visibly intoxicated patrons
Provide alternative transportation options, like partnering with rideshare apps
Maintain incident logs in case of future disputes
These steps not only help protect your patrons but also demonstrate to insurers and courts that your business takes alcohol safety seriously.
Get the Right Coverage Today
Whether you’re opening a new bar or expanding your restaurant’s offerings to include alcohol, Dram Shop insurance is a non-negotiable part of your business’s defense plan. With lawsuits on the rise and regulations tightening, don’t leave your livelihood exposed to avoidable risks.
At [Your Company Name], we specialize in crafting comprehensive liquor liability policies for small and medium-sized businesses. Our experts understand state-specific laws and can tailor your policy to fit your unique operations.
Request a free quote today and secure your business with the protection it deserves.