A dram shop statute is a law which makes commercial providers of liquor (e.g. bars and restaurants) liable for the tortious actions of those to whom they illegally serve alcohol—that is:
- People who are visibly intoxicated
Dram shop statutes also usually impose liability upon those who sell illegal drugs, regardless of the purchaser's age or sobriety.
Here's how it works. Say an 18-year-old gets drunk at a bar, then gets in his car, drives away and runs someone over. If the victim dies, his estate has a claim for wrongful death by negligence against the 18-year-old, and a claim under the dram shop statute against the bar. This is especially useful for the victim's estate because it gives them deep pockets (i.e. the bar's property and insurance) from which to satisfy their lawsuit.
Under common law, this claim against the bar would not exist. Even if the bar helped the teenager to get drunk, it is the teenager's positive acts (drinking and driving) which the common law would hold to be the proximate cause of the victim's death. (cf. Palsgraf v. Long Island Railroad Co.)
All US states have their own dram shop statutes. Some (but not all) of these statutes allow for punitive damages to be awarded against the provider in extreme cases of intentional or reckless misconduct. This gives bars and restaurants a very strong incentive to keep tabs on the age and sobriety of their patrons.