With firms facing an increasing range of exposures and the resultant surging risks, directors and officers (D&O) liability insurance are available for corporations in order to mitigate or avoid potential litigation risks. However, this behaviour may cause a “moral hazard” problem in return, because insuring D&O “misbehaviours” mitigates the supervision effect of stakeholder litigation and encourages corporate risk-taking behaviours. Based on fixed effect models, this study investigates the effect of purchasing D&O liability insurance coverage on corporate tax avoidance behaviours. We find that higher insurance coverage encourages tax avoidance behaviours in non-crisis periods, instead of crisis periods. In addition, our findings document that this negative relation becomes inapparent in companies with higher profitability and lower default risk.