Dram shop insurance:

Liquor liability & other essential coverage

When you envision a celebration, what comes to mind? Dancing? Champagne? The clink of glasses while voices exclaim, “Cheers”?

For dram shops – bars, clubs, taverns – this is an everyday scene. As a business owner, you create a space where people make connections, celebrate milestones, build relationships, and, of course, have fun.

With great power comes great responsibility – and risk. With the right insurance and risk management plan, you can protect your business, employees, and customers.

In this guide, we’ll cover:

• Who needs dram shop insurance?
• What are dram shop laws and why do dram shops need insurance?
• What kind of insurance do dram shops need?
• How much does dram shop insurance cost?
• Do dram shops need alcohol surety bonds?
• Managing risk as a dram shop
• Choosing a risk partner that understands your dram shop

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Who needs dram shop insurance?

Any establishment that sells or serves alcoholic beverages needs dram shop insurance. Traditionally, a “dram shop” referred to a shop where spirits were sold by the dram, a small unit of liquid.

Today, dram shop laws apply to:

• Bars
• Restaurants
• Nightclubs
• Taverns
• Other establishments serving alcohol

Typically, these laws mainly cover businesses where patrons consume alcohol on the premises, but they can also apply to liquor and grocery stores, depending on the state.

What are dram shop laws and why do dram shops need insurance?

Most states have dram shop laws governing businesses that sell alcohol. Usually, these laws target selling alcohol to minors or intoxicated customers. Your business can be held liable if these people cause injury or damage while intoxicated.

Liquor liability insurance helps protect your business if someone you served alcohol to causes an incident.

In addition to liquor liability, dram shops also face a variety of risks like employee injuries, property damage, and crime. Insurance can help you safeguard your assets and mitigate potential liabilities.

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What kind of insurance do dram shops need?

There are many types of insurance that could benefit your business. That’s why it’s important to follow a consultative approach to understand the full scope of your exposures. Then, your agent can help identify insurance solutions to mitigate your risk.

The policies we typically recommend for dram shops are:

• Liquor liability insurance
• General liability insurance
• Workers’ comp insurance
• Business interruption insurance
• Commercial auto with HNOA endorsement
• Commercial property insurance
• Crime insurance
• Employment practices liability insurance

Let’s explore each policy and when your business might need it.

Liquor liability insurance for dram shops

When business owners think about “dram shop insurance,” they’re likely thinking of liquor liability insurance. This coverage protects you from legal claims and financial losses arising from alcohol-related incidents. It’s required by many states and commercial leases.

It typically covers:

• Legal defense costs
• Settlements
• Judgments

When we recommend liquor liability

In most states, a liquor license and liquor liability insurance are legally required if you serve alcohol to be consumed on the premises. 

Even if your business’s primary purpose is not serving alcohol, if you serve it at special events, you should consider liquor liability coverage.

Legal insurance requirements are determined by your state’s Department of Insurance, health regulatory agency, and lease contracts. Your insurance agent can help you identify the specific requirements for your business.

Other required insurance for dram shops

In addition to liquor liability, your business might be required to have the following coverages.

General liability insurance

General liability insurance covers claims that your business caused third-party injury or property damage. It helps protect your company from financial losses due to lawsuits or other legal claims stemming from your operations such as a trip and fall, illness, or even personal injury.

When we recommend general liability

Some states require certain types of businesses to carry general liability coverage. Even if not required, GL provides fundamental protection for your business. We recommend it for every business that interacts with the public or customers.

Workers’ compensation insurance

In most states, businesses with a certain number of employees must carry workers’ compensation. Workers’ comp covers medical bills and lost wages for employees who are injured or become ill on the job.

When we recommend workers’ comp

This no-fault insurance policy protects you and your employees from the financial impact of workplace injuries. Each state has different workers’ comp requirements, but we recommend it for most businesses with employees.

Essential insurance policies for dram shops

These policies are likely not required, but we consider them essential coverage for dram shops.

Business interruption insurance

Business interruption coverage, also called business income insurance, protects businesses against financial losses due to unexpected interruptions to their operations. It typically covers:

• Lost profit
• Payroll
• Rent or mortgage payments
• Utilities
• Ongoing business expenses

Examples of covered interruptions include natural disasters, power outages, and unforeseen equipment failures.

When we recommend business interruption insurance

We recommend business interruption coverage for any business owner who wants to mitigate the risk of disruptions caused by unexpected events.

Commercial auto with HNOA endorsement

Commercial auto insurance covers vehicles used for business purposes. In most states, it’s required for commercial and personal vehicles. In case of an accident, it helps cover the cost of:

• Repairs to your vehicle
• Medical costs
• Damage to property
• Legal expenses if someone sues you

If your employees use their own vehicles for business or deliveries, their personal auto policies might not cover accidents on the job – or may not sufficiently cover your business. A hired and non-owned auto (HNOA) endorsement covers your business for liability-related claims stemming from the use of vehicles not owned by your business.

When we recommend commercial auto and HNOA

We recommend commercial auto for businesses that use vehicles for business purposes, such as deliveries. If employees are using personal vehicles for business, we also recommend the HNOA endorsement.

Commercial property insurance

Commercial property insurance protects your building and physical property from events like:

• Fire
• Theft
• Vandalism
• Hail, windstorm, lightning
• Natural disasters

It covers financial losses from property damage, lost income, and other expenses while recovering.

When we recommend commercial property

We recommend commercial property coverage for most businesses that own or rent property, including buildings, equipment, inventory, and supplies.

Crime insurance

Crime insurance covers losses caused by criminal acts like:

• Theft
• Robbery
• Fraud
• Embezzlement

These acts could be by your own employees or third parties. It covers the costs of investigations, legal defense, and judgments.

When we recommend crime insurance

We recommend crime insurance to most hospitality businesses as they’re vulnerable to crimes like theft, robbery, and fraud.

Employment practices liability insurance

EPL insurance covers employee claims of wrongful employment practices like discrimination, harassment, or wrongful termination. It covers:

• Legal defense costs
• Settlements
• Judgments

When we recommend EPL

We often recommend EPL insurance for businesses with larger numbers of employees, but any company with employees faces the risk of employment-related claims.

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How much does dram shop insurance cost?

Insurance carriers calculate your premiums using several factors:

• Business size and revenue
• Location
• Claims history
• Coverage limits

Because insurance costs can vary, it’s important to work with a risk manager to find the best solution for your business. Businesses with complex risk profiles will find the most value from partnering with an independent agent that will help them proactively manage risk for long-term success. Learn more about the benefits of integrated risk management.

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Managing risk as a dram shop: 5 common risks

1. Liquor liability

Also called “social host liability,” liquor liability is the top concern for most businesses serving alcohol. If your business overserves a patron, they can pose a significant risk to your business if they injure themselves or others, drive drunk, or damage property.

To mitigate these risks:

• Train staff on responsible alcohol service including recognizing intoxicated individuals, verifying IDs, and refusing service or offering non-alcoholic drinks to an overly-intoxicated person
• Implement security measures like dedicated security personnel, prompt intervention when a patron shows aggression and visible surveillance systems
• Carry robust liquor liability insurance coverage

2. Employee and customer injuries

Safety is crucial in the hospitality industry for both your employees and your patrons.

A serious employee injury can cost a business hundreds of thousands of dollars, impact operations, and lower employee morale. And if a customer is injured on your premises, you could be held liable for medical expenses and other damages.

To mitigate the risk associated with injury liability:

• Create clear safety policies and protocols and provide regular staff training
• Conduct regular inspections and maintenance of your facilities
• Display safety signage and mark emergency routes
• Get adequate workers’ compensation and general liability coverage

3. Property damage

Hosting hundreds or thousands of patrons on your property can lead to costly property damage – especially when alcohol is involved. Altercations can injure others and damage your facilities.

Events like fire, flooding, and equipment malfunction can also cause costly issues.

To reduce your risk of property damage claims:

• Properly maintain all systems like fire protection, electrical, plumbing, and HVAC
• Train employees on guest management and responsible alcohol service
• Carry adequate commercial property insurance

4. Crime

Because the hospitality industry often deals in cash, these businesses are especially vulnerable to theft and fraud.

To mitigate these risks:

• Implement security measures like surveillance systems, access controls, and inventory control systems
• Train employees on security protocols, cash handling, opening and closing routines, and recognizing suspicious or dangerous behavior
• Protect your business with a crime insurance policy

5. Employment-related claims

Bars, restaurants, hotels, and other hospitality businesses usually employ a significant number of staff members. This increases the potential for employment-related claims, such as:

• Discrimination
• Harassment
• Wrongful termination
• Wage disputes

To foster a positive workplace culture and reduce this risk:

• Create equal employment opportunity programs with anti-discrimination, reasonable accommodation, and zero-tolerance harassment policies
• Deploy diversity and inclusion initiatives and provide training for employees
• Get an employment practices liability insurance policy

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Choosing a risk partner that understands your dram shop

To protect the business you’ve worked hard to build, insurance alone is not enough. It’s crucial to identify the most critical threats and make strategic decisions that will allow you to grow your business without disruption.

When it comes to risk, dram shops face unique challenges. We’re right there with you – we work in the food and beverage industry too. We just happen to be on the risk management side.

When you partner with POWERS, we’re more than your insurance agency. We’re a true business partner invested in your success. Our philosophy combines: