LIQUOR LIABILITY INSURANCE? I'LL DRINK TO THAT
A Complete Guide to Serving and Hosting Responsibly

Chapter 4: How to Mitigate Your Liquor Liability Risks & Avoid Lawsuits
Part 3: Protecting Your Business with Liquor Liability Insurance

 

Unfortunately, risk management can never completely eliminate your chances of a liquor liability lawsuit. In fact, people can file lawsuits against a business even when it follows the law to the letter.

These claims might eventually be dismissed on legal grounds, but that doesn't mean your pocketbook won't take a hit. As soon as someone threatens you with legal action, you need to hire legal counsel, which isn't cheap. Legal counsel for dismissed claims can still cost you between $2,000 and $5,000 on average.

Luckily, you can purchase Liquor Liability Insurance to protect you from these costs and more.

What Is Liquor Liability Insurance?

Liquor Liability Insurance helps business owners afford the high cost of a liquor liability lawsuit. It can help you pay for expenses such as…

  • Attorneys' fees.
  • Settlements.
  • Judgments.
  • Damages and other court fees.

In other words, when your business violates your state's dram shop laws and that violation causes someone a loss, your insurance policy can cover the cost to make amends. It's usually sold as a standalone policy or bundled with a General Liability Insurance policy.

Liquor Liability Insurance can only protect you from costs arising out of the covered alcohol-related events listed in your policy. Commonly covered incidents include…

  • Drunk-driving accidents.
  • Employee incidents (i.e., accidents that arise when employees imbibe on the job).
  • Mental damages.
  • Property damages.

Your Liquor Liability Insurance might also have "exclusions" (i.e., events not covered by your policy). For example, assault and battery incidents are often excluded (although, given how common bar fights are, we encourage you to find a policy that does include this protection).

Do note that all Liquor Liability Insurance policies exclude coverage for claims alleging you furnished alcohol to a minor.

Does Your State Require Liquor Liability Insurance?

Some states require liquor-selling establishments to carry a certain amount of Liquor Liability Insurance before they can obtain a liquor license. Unfortunately, comprehensive and updated data on this subject is difficult to come by – even for insurance agents – because the laws vary so wildly from state to state. Additionally, a court ruling or new legislation can change dram shop laws that govern these stipulations.

Check out the map below to see if you live in a state that requires your business to carry Liquor Liability Insurance. Do note: we've done our best to summarize the information available, but it's always a good idea to check with your local ABC board about the rules and regulations for your area.

 

Map indicating which states require Liquor Liability Insurance by law. One color for YES, one color for NO, and another for N/A. List for each is below

Requires LL Insurance:

  • AL
  • HI
  • IL
  • IA
  • MA
  • MI
  • MN
  • NH (*only those who are ordered to do so after violating serving laws)
  • OR
  • UT
  • VT
  • VA (*only if ordered to do so after license has been suspended)

Does NOT Require LL Insurance:

  • AK
  • AR
  • CA
  • CO
  • CT
  • DE
  • DC (Washington)
  • FL
  • GA
  • ID
  • IN
  • KY
  • LA
  • ME
  • MD
  • MS
  • MT
  • NE
  • NJ
  • NM
  • NY
  • NC
  • OH
  • OK
  • PA
  • TX
  • WA
  • WV
  • WI
  • WY

N/A (Cannot confirm / info not readily available)

  • AZ
  • KS
  • MO
  • NV
  • ND
  • RI
  • SC
  • SD
  • TN

Additionally, most states require liquor-selling establishments to carry Liquor Bonds as a requirement for licensure. You can read more about these bonds below.

What You Need to Know about Liquor Bonds

Liquor Bonds (aka Alcohol Bonds, Liquor License Bonds, and Liquor Tax Bonds) are a type of surety bond that guarantee your compliance with federal or state laws governing the sale, manufacture, or warehousing of alcoholic beverages.

Most states require you to carry a Liquor Bond as a prerequisite for your liquor license, but the laws vary depending on where you live. Usually, this bond guarantees that you will pay alcohol-related taxes or fees imposed by state or local government. Unlike insurance policies, the bond doesn't protect you.

Rather, it protects the "obligee" (in this case, the government entity that requires the bond) from falsified records of sale or your inability to pay requisite taxes on previous sales. Should you fail to pay the state or local government the fees you owe, the bond will reimburse it for its losses. However, because a bond is a form of credit, you are required to pay your surety provider back for the full amount of a claim.

Because a Liquor Bond primarily protects the government from losses, it doesn't offer you any liability protection from liquor-related lawsuits. You need Liquor Liability Insurance for that.

 

Next: Conclusion & References

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