What is a dram shop law? Restaurant, bar and cafe liability for customers who drink

What is a dram shop law? Restaurant, bar and cafe liability for customers who drink

Jessica Crosby
By Jessica Crosby
Dec 18, 2023
1 min read

The majority of states have a dram shop law in place to protect the general public from damage caused by intoxicated people. Restaurant and bar employees need to protect themselves and their business from the potential liability of serving customers alcohol.

Jump ahead to learn more about dram shop laws, and how dram shop liability insurance, also called liquor liability insurance, can help protect your business.

What is the dram shop law?

Dram shop laws hold businesses responsible if minors or intoxicated patrons are served alcohol and later cause harm — such as death, injury or property damage. Dram shop laws vary state to state.

The term “dram” comes from 18th-century English measurement of alcohol, and dram shop laws date back to early temperance movements during this time. The goal of dram shop laws is to reduce overserving so that there are fewer accidents related to alcohol consumption.

What does a dram shop act mean to a seller/server?

Dram shop laws typically apply to restaurants, bars, liquor stores and vendors. They may even apply if you host events that serve alcohol, such as catering or some retail businesses.

Victims affected by the intoxicated can file civil lawsuits against the business or employee who served them alcohol. For example: A group comes to your restaurant to celebrate a birthday with dinner and many rounds of drinks. Unfortunately, they get in an accident on the way home that seriously injures the other driver. Your business could be sued if the driver was over the legal limit.

Dram shop laws vary from state to state, so be sure to check your local laws and consult an attorney for legal advice. In some states, an intoxicated customer can sue a seller or server if they sustain an injury. In other states, the customer is deemed responsible as long as they are of legal drinking age.

Some states don’t have dram shop laws, including:

  • Delaware
  • Kansas
  • Maryland
  • Nevada
  • South Dakota
  • Virginia

How can a restaurant, bar or cafe protect itself from dram shop liability?

A restaurant, bar or cafe can help protect itself from dram shop liability if they do these three things:

1. Protect your business with adequate insurance

Liquor liability insurance can help protect businesses that manufacture, sell and serve alcohol. It could cover losses that result from intoxicated guests, including:

  • Legal costs.
  • Lawsuit settlements.
  • Repairs to fix property damage.
  • Medical expenses related to injuries.

Host liquor liability insurance is similar, but it’s insurance coverage only for alcohol consumption at short-term private events like weddings or parties. It doesn’t cover businesses that manufacture, serve or sell alcohol as part of their operations. Note that NEXT does not sell host liquor liability.

In addition to coverage for serving liquor, restaurants, bars and cafes need other important coverage. Many local governments won’t even let you apply for permits until you have the correct insurance for your food business.

To serve food and drink, you’re often required to carry:

Learn more about restaurant insurance.

2. Train staff on dram shop laws and alcohol serving practices

Teach your staff not to overserve alcohol to customers. Employees should learn the signs of intoxication including: Slow or slurred speech, bloodshot eyes, loss of balance and lack of coordination.

Create a protocol for recognizing the signs and how to talk to a potentially angry customer about not getting served. This should include a clear chain of command if the employee needs assistance.

3. Understand local liquor license requirements and rules

If you serve alcohol at your business, you will need two licenses — one from your local alcohol beverage control board and one from the federal Alcohol and Tobacco Tax and Trade Bureau. Every state has different requirements for liquor licenses. Here are a few to get you started:

New Jersey


Be sure to check with your local municipalities to fully understand the rules around serving alcoholic beverages in your area, and consult an attorney for legal advice.

How NEXT helps protect your food and beverage business

Business insurance can help protect against alcohol-related liabilities. Our customized food and beverage insurance packages provide just the right amount of coverage to help your business thrive.

Choose from general liability insurance, workers’ compensation insurance, commercial property insurance or liquor liability insurance. Mix and match policies for your unique business needs.

Review your policy options, get a quote and purchase coverage — all in less than 10 minutes. Your certificate of insurance is available immediately after you pay your premium.

If you have questions, our licensed, U.S.-based insurance professionals are ready to help.

Get started with a free quote from NEXT.

The information provided on this blog does not, and is not intended to, constitute legal advice; instead, this blog is for general informational purposes only. Readers of this blog should contact their attorney to obtain advice with respect to any particular legal matter.

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Jessica Crosby
About the author

Jessica spent over a decade working in education before moving into content marketing. She has worked on content marketing campaigns in the edtech, real estate, and personal finance sectors. She has a passion for working with companies that take the time to educate their customers. When she’s not working, she’s probably outside with her two kids.

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