Betty,
From what I've read, an individual would have to initiate legal action against the Association and individual board memters. The Association's Board of Directors would then determine, through consultations with the Association attorney, if they want to fight your legal action, resolve the issue through mediation or resolve the issue by correcting the mistake.
If the BOD determines to fight the legal action then they would make the decision to either:
a) use the Associations attorney or
b) file a claim with the insurance company (the D&O policy)
IF the BOD decides to file a claim with the insurance company then:
a) The insurance company attorneys would represent the Board
b) The insurance company attorneys would provide the Board with alternatives - mediation, out of court settlement, etc.
IF the case went before a judge and your legal action was decided in your favor and survived any appeals process then the Association would follow the court ordered action. If it was a monitary award, then the Insurance Company would either pay you directly or the Association directly.
During this process, you will incur your own legal bills.
During this process, you will be required to pay any special assessments the BOD's make to pay the Associations legal bills.
Here are some links I found that may be helpful to you:
American Bar Association 2009 Article - Directors and Officers Liability Insurance for Nonprofits Guidestar 2004 article - Nonprofit Directors and Officers Insurance: The Good, the Bad, and the Ugly Exine Article - D&O Insurance - The Basics For Nonprofit Boards Smart Business Detroit 2009 Article - How to protect yourself against D&O lawsuit exposure You should know that I am not an attorney and I do not work in the legal profession. I am offering advise based on your posting, research, personal experiences and, hopefully, some common sense.
Tim