When Jim Stiegman of Colonel Brooks' Tavern in Northeast Washington opened his insurance bill for this year, he had a rude surprise.

In 1984, Stiegman paid $185 for "liquor liability" insurance: protection against lawsuits in which the tavern is sued by a customer -- or, more likely, the victim of a customer -- who has had too much to drink and is involved in an automobile accident.

This year, Stiegman's insurance company informed him, they were canceling the policy. Stiegman shopped around, but the best price his insurance agent could come up with was $26,500 for half the amount of coverage, $500,000 protection for each incident instead of $1 million.

"That would be the salary for your restaurant manager for a year," said Stiegman.

Stiegman instead opted to "go bare," operating without liquor liability insurance, beefing up programs to educate his staff about handling intoxicated customers and crossing his fingers that he would not be sued.

Stiegman's situation is not unusual. A growing number of District bar and restaurant owners, like Stiegman, say they are being offered liquor liability coverage at rates they cannot afford. Others are finding that they cannot buy liquor liability insurance at any price.

"I've never had more calls on any one subject," said Michael Maher, executive director of the Washington, D.C., Restaurant and Beverage Association. Since January, he said, "there has been an unending flow" of complaints from bar and restaurant owners about their difficulties obtaining insurance.

"A substantial proportion of the restaurants in D.C. now have no liquor liability coverage," Maher added, "and they are out on a limb." He said there are no hard figures available, in part because the insurance policies come up for renewal at different times during the year.

The liquor liability problem -- one aspect of the general increase in the cost of liability insurance for all businesses -- is hitting bar and restaurant owners across the country. It stems from a growing number of lawsuits seeking to hold bars and restaurants liable for serving intoxicated customers who are later involved in crashes.

About 38 states impose such "dram shop" liability, either by legislation or by court decision. The International Risk Management Institute estimates that there was a 300 percent jump last year in the number of lawsuits seeking to hold bars and restaurants responsible for the actions of their patrons.

In a number of recent cases, juries have awarded multimillion- dollar judgments against the establishments. In August, a Michigan bar agreed to pay $10.8 million after an underaged patron was involved in a head-on collision that left two persons dead and one injured. In May, a Kentucky jury ordered a dinner theater to pay $10 million in the case of two minors injured in a crash after drinking champagne there.

"As jurors have become more aware of the role that bars and restaurants play in causing drunk driving, they have seen fit to hold more and more bars and restaurants liable, and the size of the amounts recovered has increased dramatically, said Ronald S. Beitman, a Falmouth, Mass., lawyer who edits a newsletter about such litigation.

As that has happened, insurance companies, increasingly nervous about exposing themselves to huge losses, have either increased the cost of coverage, or, unable to calculate what price would be worth the risk, stopped offering it entirely, either nationwide or in those jurisdictions that they deem particularly likely to impose liability.

Insurers have been particularly sensitive to the threat of suits, industry representatives said, because the companies that write liquor liability policies tend to be small firms relatively uncapable of swallowing large losses.

"It used to be you could hardly give the damn stuff away," said Nicholas Taube, vice president of underwriting for the North East Insurance Co. of Portland, Maine.

But, he said, "As soon as the lawsuits started coming out of the woodwork, underwriters were left in the position of not knowing what the risks are. How to price it, nobody has any idea. They have no idea what standards are going to be applied, and the losses kept on coming and coming."

Taube said his company first tried offering lower levels of coverage and raising rates until it stopped writing liquor liability policies entirely at the end of last year.

In the Washington area, the problem is particularly acute in the District, restaurant and bar owners said. It is unclear under District law whether an injured party can sue a restaurant for injuries committed by a drunk patron: In 1973, the U.S. Court of Appeals for the D.C. Circuit found such liability, but no local courts have decided the issue, and it is not certain that they would follow that precedent.

Insurance companies, however, are betting that D.C. courts would hold restaurants responsible, and they are adjusting their practices accordingly. "D.C. is viewed as a place where courts are notorious for favoring the plaintiff," said Marc Rosenberg of the Insurance Information Institute.

The Hartford Insurance Group, for example, decided in August to stop writing liquor liability policies in the District and several states, according to spokesman Joe Fazzino. In any case, Fazzino said, the company will not offer the insurance to any establishment where liquor sales account for more than 20 percent of its revenues, excluding most places with liquor licenses.

Maryland does not impose dram shop liability, lawyers said. In Virginia, the situation is murky: U.S. District Judge Richard L. Williams, applying Virginia law, ruled this year that the Army could be held responsible for serving liquor to a soldier who was later involved in a fatal accident, but local court judges subsequently dismissed two similar suits.

Some observers have criticized the insurance industry for bailing out of the liquor liability market just as it was being forced to pay off on claims, after years of reaping premiums without facing major risk.

"It's an easy out for them to say, 'Hey, these claims are astronomical,' " said Victor Colman of the Prevention Research Center, a Berkeley, Calif., organization that studies alcohol-related issues.

"The insurance industry is purposefully exaggerating the success of these suits in order to be able to extract very large premiums," Beitman asserted.

For their part, insurance companies respond by arguing that they are merely responding rationally to an increasingly hostile legal climate.

"Sure it was a free ride" in the past, Taube conceded. But, he said, if industry critics "think [liquor liability insurance] is such a good idea, why don't they start writing it?"

Industry representatives concede that restaurant and bar owners who do not carry liquor liability insurance may have more incentive to emphasize to their employes not to serve intoxicated customers and to offer to call cabs for customers they suspect have had too much to drink.

But, they say, it is not fair to force owners to chance going without insurance, because even the most careful proprietors might find themselves the target of a lawsuit. "If we told you you could not have auto insurance, you'd be loath to drive a car and take the risk of having to pay somebody for the rest of your life," said Stephen O'Brien, general counsel for the D.C. Restaurant and Beverage Association.

A few states have come up with new approaches to the liquor liability insurance problem. Massachusetts, for example, set up a joint underwriting association, to begin operating next month, in which all companies selling personal injury liability insurance in the state are required to sell liquor liability policies to establishments unable to obtain coverage on their own.

Those on both sides of the debate agree that the victims, as well as the establishments, are better off if liability insurance is available.

"The bottom line," said Colman of the Prevention Research Center, "is if you go bare and you have an innocent victim hurt, that person will go uncompensated.