Alcohol is a great social lubricant and can be an important part of a fun night with family and friends. Unfortunately, it can also be abused and expose the establishment that served it to liability.
While you might think that it's up to the individual customer to make responsible decisions regarding their own alcohol consumption and their actions while intoxicated, those who served the liquor could might still be at least partly liable for any bodily injury or property damage caused by the intoxicated patron. This is called contributory negligence, and if found guilty, the courts usually attribute 10-50% of the damages to the liquor-serving establishment.
Liability exposures are more numerous than you think. For example, if an intoxicated guest leaves your bar, gets into their car and runs over a pedestrian on their way home, the victim's family can sue you for damages. You might even face liability if two drunk patrons get into a fight at your establishment or if your bouncers use excessive force to eject an inebriated patron.
In light of the many different ways you might be exposed to liability, a prudent owner of a restaurant, bar, nightclub, hotel, or any other business in which liquor may be served will want to talk to their insurance broker or agent about liquor liability and how to protect themselves (check out Running a Hospitality Business? Here's the Insurance You Need for related advice). Surprisingly, even private individuals who host parties, weddings, or other social events where alcohol is served can benefit from this type of coverage.
If you are sued for alcohol-related liability, your liquor liability policy would come to your defense and cover any legal costs, court fees, and damages awarded by the courts.
That being said, insurance can only do so much. There are other proactive risk management procedures you should put in place to ensure things never get to the point where you'll need to file a claim. You should, for example, train your staff to refuse service to patrons who are clearly too intoxicated and make reaching taxis or other designated driver services easy and convenient. Serving food and non-alcoholic beverages is also a good idea.