Dram Shop Insurance

Liquor Liability Insurance

Dram Shop Insurance, also commonly referred to as Liquor Liability Insurance, is a specialized type of liability coverage for businesses that serve and sell alcoholic beverages. Many insurance carriers do not have a strong appetite for quoting businesses where a large amount of alcohol is served. Most carriers will shy off companies as the percentage of alcohol sales moves northward of 50 percent of total sales. When a business does sale predominantly alcohol, there are fewer carriers to get a quote from. The market for this type of coverage is divided up between two types of carriers, Admitted and Non-Admitted Carriers. Both types of carriers serve a functional role for the market. Here is a detailed description of what Dram Shop Insurance is, where Dram Shop Laws came from, what types of businesses need Dram Shop Insurance, what types of carriers offer Dram Shop Insurance and how much the coverage costs.

Two people sitting at a bar show the need for a business to purchase Dram Shop Insurance.

Dram Shop Law? (Where the need for Dram Shop Insurance Arose.)

Dram Shop as a term comes from a time many years ago when alcohol was sold by the dram. This was typically an eighth of an ounce or what is commonly today served as a shot of alcohol. All but 6 states (Delaware, Kansas, Maryland, Nevada, South Dakota, and Virginia) have some form of Dram Laws on the books. States where Dram Laws are on the books a business may face liability if a customer gets into a fight, damages someone else’s property, or even gets into a car accident.

What Businesses Need Liquor Liability Insurance Coverage?

Businesses that typically need liquor liability insurance coverage include: Restaurants, Bars, Taverns, Caterers, Breweries, Wineries, Grocery Stores, Liquor Stores, Convenience Stores, Food Trucks, and Grocery Stores. Most of these businesses are legally required to carry General Liability, Workers Compensation, and Liquor Liability Insurance. Workers Comp will cover injured employees, General Liability will cover general third party liability minus the specified exclusions, and Liquor Liability covers risks associated to intoxicated customers. Most carriers have specific packages of policies for businesses in this industry depending upon the specific classification code. It is important to partner with an independent insurance agent with whom you trust and take their recommendations. Not securing enough insurance is a main factor that leads to many businesses closing their doors permanently after a loss.

Several people toasting drinks at a bar.

3 Major Risks Associated with Serving Alcohol

The three major risks associated with alcohol serving businesses include selling alcohol to an intoxicated customer, contributing to the over-intoxication of a customer, and serving alcohol to a minor. None of these events by itself trigger a Dram Shop Insurance Claim, but they can lead to any incident involving an intoxicated patron that does lead to legal liability for the business. These incidents can include injuries to the customer, the minor, or an unrelated third party injured by the intoxicated patron.

Admitted Carriers Vs. Non-Admitted Carriers

Finding a carrier to offer Dram Shop Insurance may be difficult for some businesses. Depending upon the appetite of the carrier, the claims history of the business, the amount of revenue of the business, and the percentage of revenue that comes from the sale of alcohol. There are two types of carriers that do offer Liquor Liability Insurance, Admitted and Non-Admitted Carriers. The basic difference between the two types of carriers is admitted carriers are required to file their rates with the state governing body and follow certain rules set by the state governing agency. Non-Admitted Carriers are not required to file rates nor are they required to follow the same rules as Admitted Carriers. Non-Admitted Carriers do serve a functional role within the insurance system of the states they operate within. They are often the carriers that are willing to take on high risk businesses that have a greater likelihood of losses. Non-Admitted Carriers are required to show proof they are financially able to cover the claims they are taking on. Each state has their own way to require carriers to prove this.

Sign outside of Cheers Tavern. Where everybody knows your name.

Special Considerations of Carriers who offer Dram Shop Insurance Coverage?

The cost of the Dram Shop Insurance depends on a number of factors including the classification code of the business, the claims history of the business, the location of the business, the revenue of the business, and the amount of revenue that comes from the sales of alcohol.

Classification Code

The Classification Code of the business will determine the recommended premium rate for workers compensation insurance. Depending upon the risks involved with the business this can be favorable or unfavorable in relation to what the business pays for coverage.

Claims History

The Claims History of the business applying for a Dram Shop Insurance Policy impacts immensely what the business pays for premium. The experience modification rating deals with the three previous years of claims history not including the current year. For new businesses without enough claims history, the rating is negatively impacted. For businesses with frequent or severe claims, the rating is impacted more. Businesses that have low or no claims, have an in-depth safety program, and a return-to-work program tend to pay less for premium.

Location

If a business is located in an area of town where crime is more prevalent, the amount the business pays for insurance may be impacted. The location of the parking lot and the amount of lighting on the premises impact premium. The presence of security or law enforcement can impact what a carrier charges for insurance.

Revenue

The revenue of a business will impact the amount of risk related to the business. A business that serves more alcohol will in turn have more intoxicated customers. The more intoxicated customers being served at a business, results in more likelihood of the business facing liability.

Amount of Revenue from Alcohol Sales

Businesses that get more than 50 percent of their sales from alcohol are much more likely to face liability due to intoxicated patrons. The higher the revenue and the higher the percentage of alcohol sales will result in a high rate of premium.

9 things to know about Liquor Liability Insurance

Liquor Liability

Liquor Liability Insurance is also known as dramshop liability in many parts of the United States. Most businesses that sell or serve alcohol are either legally required to buy Dram Shop insurance, or will benefit and protect their business by having this insurance coverage. Here are nine things to consider when deciding to buy Liquor Liability Insurance.

Liquor Liability

Dram Shop Laws exist in 43 states

“Dram Shop” laws (a law that makes a business liable if they serve a patron who is clearly intoxicated) exist in forty-three states. Each law is unique to the state it exists in. Most laws require some legal liability to be placed on any business serving alcohol or allowing alcohol to be served on a property owned by the business.

Liquor Liability Laws differ by state

Each state has their own unique laws governing liability. The best way to make sure you have the proper protection for your establishment is to partner with an independent agent who has experience offering coverage to liquor serving establishments.

Most states require coverage

In most states it is a requirement to carry Liquor Liability Insurance just to be in business. Even if the law does not require coverage, it is always best to carry some coverage to protect the business from liability resulting from the actions of intoxicated patrons.

Most Banks or Financial Institutions Require Liquor Liability Coverage

Even if your individual state does not require coverage, many banks and other financial institutions require coverage in order to get a loan on a property or a business line of credit.

You don’t have to serve alcohol to be sued

If you rent out a facility that allows parties where alcohol is served or sold, you can be sued because of the actions of intoxicated guests at your facility. If you allow guests to rent out your property and alcohol is served, you can protect your business with Dram Shop Liability Insurance.

Some states allow multiple establishments to be defendants in a lawsuit.

Most states only allow them to be defendants in a lawsuit when an intoxicated person causes bodily injury to a third party after attending the establishment. Even if the patron spent a majority of the night consuming alcohol at another location. The establishment must prove that the patron was not or did not appear intoxicated while at their establishment.

Homeowner’s and Commercial Property have Lower Limits

Some Homeowner’s or Commercial Property Insurance Policies cover liquor liability. Typically this coverage is very specific and the limits are much lower then a Liquor Liability Insurance Policy. If Dram Shop Liability is covered by a homeowners insurance policy, it commonly is limited to $100,000 to $300,000 in coverage, according to the Insurance Information Institute (I.I.I.).

Underage Drinking is not covered by Liquor Liability

Most all Liquor Liability Policies do not cover issues regarding underage drinking. This is because underage drinking is a crime. If the establishment served an underage patron, they broke the law. Any time a crime is committed it invalidates an insurance policy. This is why you see managers and bouncers acting like professional wrestlers when they encounter an underage drinker on their premises.

Alcohol Awareness Education

Many carriers offer discounts on liquor liability coverage to establishments that provide alcohol awareness education and training to employees. This is a must for any establishment that offers alcohol. Not only because it can reduce what you pay for commercial insurance, but it can drastically lower the likelihood of a severe incident occurring on your premises.

Liquor Liability Insurance

Get the best answers to your liquor liability insurance questions at MyInsuranceQuestion.com

Liquor liability insurance is a coverage that all restaurants, bars, clubs or any establishment that sells alcohol needs to have in place. This coverage is very important because when you sell or serve alcohol you open yourself up to be liable for damages or injuries caused by intoxicated people. These types of damages could include fights, automobile accidents, etc. When we first think of who is at fault the initial reaction is to blame the intoxicated person, but what happens if an accident occurs and someone is severely injured or harassed. The victim or victim’s family may get a lawyer involved and then all of sudden they will look at all the events that led up to the incident. If the establishment played a part in serving a clearly intoxicated person they could be held liable and be sued.

Liquor Liability Insurance is a coverage that protects your business from personal injuries and property damages resulting from a liability lawsuit. The good thing about this coverage, is that it covers the cost to defend. Since legal fees and court cost generally are high even if you are found not to be held liable. One key that you want to make sure of is that assault and battery coverage is included in your liquor liability insurance coverage. Since this would cover fights that occur at your establishment or if a bouncer handles a situation in an aggressive manner resulting in injury to the person they are making leave. In some policies it will even cover someone that is not involved, but the bouncer pushes through them to get to the fight.

What about Underage drinking? Underage drinking is something that all establishments are aware is illegal. It is very important to check ids, train staff to do so and including training on how to handle fake ids. This is very important because coverage is EXCLUDED for anything resulting from an underage person causing injury or a fatal accident resulting out of drinking at your bar, restaurant, etc. This could essentially put you out of business since you are picking up the entire cost of the incident when it involves a minor who obtained alcohol at your establishment.

Where is this coverage located in my policy or how can I add it? Most states require this coverage if you are serving alcohol at your establishment. Because of this it is an easy coverage to get and it does come at varying levels with different limits of coverage. You can purchase the coverage on a stand-alone basis. This is not always the most cost effective. Probably the best place to add the coverage is with your general liability or business owners’ insurance policy if at all possible. It is generally cheaper if you package it with those policies. Depending on the % of alcohol sales though you may have to purchase it separate from those. An example of this would be a bar with 100% alcohol sales usually has to purchase separately.

There are companies that specialize in this coverage so it is good to look around before purchasing or when shopping your insurance coverage every few years. You can get this coverage for special events such as weddings, parties, festivals, etc. I recommend contacting your agent or insurance professional for any help.