I may be wrong on this, but I believe you cannot insure yourself against acting illegally. In that light, I interpret the following court decision as determining that software piracy is legal.

UNIK Associates was in the business of reselling software to businesses. Symantec sued and won a case against UNIK, alleging that it pirated its software products. UNIK then sued its insurance company to make it pay the fine, and has just won. The court argues that the policy covered copyright and trademark infringements.

Isn't the purpose of all liability insurance to "insure yourself against acting illegally"?

It's been ages since I took a CLU exam or cracked an insurance text, but Christian is right that an insurance contract can't generally be written to pay a claim to the owner of a policy covering an act contrary to law that he commits. There might be an exception, but I don't know of it. I haven't read the policy in question or the court's decision, but it seems likely that it is illustrating Dicken's dictum about the law being an ass. I don't see how an insurance policy could cover copyright and trademark infringements, at least those made knowingly and with "malice" aforethought. Unintentional infringements might be another issue, but the operative word is might.

And no Jesse, liability insurance doesn't insure yourself against acting illegally. On the contrary, illegal acts committed by an insured aginst his own property are generally explicitly excluded from claims under such policies. If you own a building and insure it for $X against damage and destruction by vandals, arsonists, etc., then vandalize or torch it and are subsequently found guilty of arson or property destruction, your insurance company won't pay a claim you submit for it. That's one reason why such policies have deductibles. These alleviate the problem of moral hazard, because the insured has skin in the game in the form of some uninsured loss even if he submits a claim. This also gives him some incentive to guard his property, to secure it, and to keep arsonists and vandals at bay.

Disability insurance works the same way, with waiting periods taking the place of deductibles. Health insurance--at least the old indemnity kind (outlawed here in the People's Republic of New York since about 1994)--has (or is it had?) deductibles sometimes as large as $10,000 (with correspondingly smaller premiums). The deductibles helped prevent moral hazard and gave owners of health insurance marginally more incentive to stay healthy.