Understanding Dram Shop Laws: Why Bars and Restaurants Need Liquor Liability

Running a bar or restaurant comes with significant responsibilities, especially when serving alcohol. Most business owners understand the need for liquor liability insurance, but how much is truly enough?

What Are Dram Shop Laws?

Dram shop laws allow individuals to sue establishments that overserve alcohol to patrons who later cause harm. These laws are designed to encourage responsible alcohol service and provide victims of alcohol-related incidents with a means of compensation.

Dram Shop Laws Vary by State

Different states will have different Dram Shop laws, for example:

• Illinois has one of the oldest and strictest dram shop laws in the United States. Under the Illinois Dram Shop Act, bars, restaurants, and other establishments serving alcohol are held strictly liable for injuries or damages caused by an intoxicated person they served and does not require proof that the server knew the person was intoxicated. If alcohol is a proximate cause of the harm, liability is automatic.
• Texas requires proof of “obvious intoxication”.
• California limits liability to serving alcohol to minors, with no dram shop liability for serving intoxicated adults.
• And in Florida, dram shop liability only applies when serving to minors or someone known to be habitually addicted to alcohol.

Liability Caps: What Are the Limits?

Some states impose statutory caps on damages in dram shop cases to limit the financial liability of alcohol-serving establishments.

For example, Illinois sets annual caps on how much an establishment can be required to pay in dram shop cases. For 2024, these limits are:

• $85,578.54 per person for injury or property damage.
• $104,595.99 per incident for losses related to someone's death or injury, such as loss of support or companionship.

These caps limit how much an establishment may have to pay in damages.

Why Do I Need $1,000,000 Liquor Liability Coverage if my State Caps Dram Shop liability?

If Dram Shop Laws limit damage liability in your state, you may wonder why your businesses need such high liquor liability coverage. There are several critical reasons:

1. Coverage for Legal Defense Costs

Liquor liability insurance covers not only damages but also the costs of defending your business in court. Legal fees in dram shop cases can be substantial and may quickly erode coverage limits. A higher policy limit ensures there’s enough protection for both defense costs and damages.

2. Claims Beyond Dram Shop Laws

Dram shop laws only cover specific types of claims, such as loss of support or companionship. However, bars and restaurants could face additional liabilities, such as Negligence claims.

Higher coverage limits protect your business from risks beyond what the dram shop laws address.

3. Multiple Incidents in a Policy Period

The statutory cap applies per incident, but multiple incidents in a year could lead to aggregate claims far exceeding the cap. Many Liquor liability policies have an aggregate limit of $2,000,000 which provides protection for these cumulative risks.

The Importance of Prevention

While robust insurance coverage is essential, proactive measures can reduce your risk of facing dram shop lawsuits:

• Train your staff to identify and address signs of intoxication.
• Establish clear policies for cutting off service to intoxicated patrons.
• Use tools like ID scanners to verify age and prevent underage sales.

Protect Your Business

Dram shop laws highlight the serious financial risks faced by alcohol-serving establishments. Even with capped damages, the total costs of lawsuits, legal defense, and other liabilities can be devastating without sufficient insurance.

If you’re unsure about your liquor liability coverage, Concklin Insurance Agency can help. We’ll work with you to assess your risks and ensure your policy provides the protection your business needs. Contact us today to learn more.