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                                                                    Exhibit 10.3



                              SEPARATION AGREEMENT

This Separation Agreement ("Agreement") dated as of this 14th day of June, 1999,
is entered into by and between Linda C. Larrabee ("Employee") and Insurance Auto
Auctions, Inc. (the "Company") to set forth the terms, conditions, and
obligations of each party with respect to the termination of the employment
relationship between Employee and the Company. Whereas, the parties mutually
agree that their joint interest would be furthered by an amicable separation,
the parties therefore agree as follows:

                                    COVENANTS

1.       Termination of the employment relationship between Employee and the
         Company shall be effective as of May 21, 1999 (the "Termination Date").
         Employee resigns from her positions as an officer and employee of the
         Company, from any and all officer, director or employee positions with
         any of the Company's subsidiaries, from her position as a member of the
         Administrative Committee of the 401 (k) Plan, and as a proxy for
         purposes of voting shares of the Company's Common Stock on behalf of
         shareholders of the Company at the Company's Annual Meeting of
         Shareholders scheduled for June 16, 1999, all effective as of the close
         of business on the Termination Date.

2.       As consideration for Employee entering into this Agreement, the Company
         agrees:

         (a)      Employee shall receive from the Company a lump sum cash
                  payment equal to the sum of (i), (ii), (iii) and (iv) below,
                  payable on the next regular payday following expiration of the
                  rescission period set forth in Paragraph 7 below:

                  (i)      Forty-six (46) weeks of pay, computed at Employee's
                           regular weekly base salary in effect on the
                           Termination Date (such gross amount equal to
                           $152,508);

                  (ii)     A bonus equal to 35% of Employee's annual base salary
                           in effect on the Termination Date, prorated for 10.5
                           months (such gross amount equal to $52,798);

                  (iii)    An automobile allowance equal to 10.5 times
                           Employee's monthly automobile allowance in effect on
                           the Termination Date (such gross amount equal to
                           $17,220); and

                  (iv)     A cash payment of $3,000 to compensate Employee for
                           lost vesting under the Company's 401 (k) Plan.



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         (b)      (i)      For a period of ten (10) months following the
                           Termination Date, the Company will continue to
                           provide medical, dental, short-term disability,
                           long-term disability and life insurance benefits to
                           Employee and/or Employee's family at the same cost
                           and at least equal to those which would have been
                           provided to them in accordance with the medical,
                           dental, short-term disability, long-term disability
                           and life insurance programs, practices, and policies
                           of the Company (the "Company Welfare Plans") if
                           Employee's employment had not been terminated,
                           provided, however, that such benefits will be
                           continued only to the extent permissible under the
                           terms of such Company Welfare Plans and applicable
                           law. Employee's share of the cost of such benefits
                           for the ten (10) month period beginning on the
                           Termination Date shall be deducted from the amount to
                           be paid to Employee pursuant to subsection 2(a)
                           above; provided, however, that if Employee's coverage
                           is terminated prior to the end of such ten (10) month
                           period, the Company shall reimburse Employee for
                           Employee's share of the cost of the unused benefits.

                  (ii)     If any of the Company's Welfare Plans do not permit
                           continued participation by Employee and Employee's
                           family after termination of employment, the Company
                           will reimburse the Employee for the cost of obtaining
                           comparable coverage from a third-party insurer.

                  (iii)    If Employee is receiving medical and/or dental
                           benefits under the Company's Welfare Plans, then upon
                           termination of such benefits on or before the end of
                           the ten (10) month period described above (the
                           "Benefit Continuation Period"), the Company will
                           continue to provide such medical and/or dental
                           benefits to Employee and/or Employee's family
                           pursuant to Title I, Part 6 of the Employee
                           Retirement Income Security Act of 1974, as amended
                           ("COBRA"). For such purpose, the termination of the
                           Benefit Continuation Period will be considered the
                           date of the "qualifying event" as such term is
                           defined by COBRA and the cost of continued coverage
                           during the COBRA period will be determined pursuant
                           to COBRA and paid entirely by Employee.

         (c)      The Employee's active participation in all other employee
                  benefits plans and programs maintained by the Company,
                  including the Insurance Auto Auctions, Inc. 401 (k) Plan (the
                  "401 (k) Plan") and the Insurance Auto Auctions, Inc. Employee
                  Stock Purchase Plan (the "Stock Purchase Plan"), shall
                  terminate as of the Termination Date, and no contributions to
                  such plans or programs will be made on behalf of the Employee
                  for any period of time after the Termination Date. Employee's
                  entitlement to accrued benefits under the 401 (k) Plan and
                  Stock Purchase Plan shall be governed by the terms of


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                  the corresponding plan documents, based on an ending service
                  date that shall be the same as the Termination Date.

         (d)      All outstanding stock options granted to Employee as set forth
                  on Attachment A hereto shall become 100% vested and
                  exercisable on the day after the expiration of the rescission
                  period described in Paragraph 7 below. Such vested stock
                  options will continue to be exercisable until May 31, 2000.
                  Stock options not exercised by May 31, 2000, shall expire and
                  be of no further force or effect. The options shall continue
                  to be governed by the terms and conditions of their respective
                  Notices of Grant of Stock Option and Stock Option Agreements,
                  as amended by this subsection 2(d).

         (e)      Employee shall receive accrued but unused vacation pay through
                  the Termination Date, to be paid on or before the Company's
                  next regularly scheduled pay date following the Termination
                  Date.

         (f)      Amounts paid to Employee pursuant to this Section 2 shall be
                  subject to applicable withholding taxes as may be required
                  pursuant to federal, state or local law, or by agreement with
                  or consent of Employee.

3.       Employee shall remain bound by all terms and conditions of the
         Confidentiality Agreement dated as of February 23, 1998 and attached
         hereto as Attachment B.

4.       Employee shall immediately deliver all Company property not previously
         delivered to the Company.

5.       The Change in Control and Employment Agreement between the Company and
         Employee dated February 23, 1998 shall be terminated, and shall have no
         force and effect, as of the Termination Date.

6.       As consideration for the obligations undertaken by the Company pursuant
         to this Agreement, Employee, for herself, her successors,
         administrators, heirs and assigns, hereby fully releases, waives and
         fully discharges the Company, its subsidiaries and affiliates, their
         predecessors, successors, assigns and their respective officers,
         directors, agents and employees, whether past, present or future (the
         "Released Parties") from any and all claims, causes of action, suits,
         demands, damages, judgments or liabilities, of any nature, including
         attorneys' fees and costs, known or unknown, absolute or contingent,
         arising from or relating to Employee's employment and separation from
         employment. This release includes, without limitation, any and all
         claims for breach of contract, wrongful discharge or impairment of
         economic opportunity, any claims under common law or at equity, claims
         of defamation or intentional infliction of emotional harm, any tort,
         claims for reimbursements or commissions, and any and all rights and
         discrimination claims Employee may have arising under the Federal Age
         Discrimination and Employment Act of 1967 (29 USC ss.ss.621, et seq.),
         Title VII of the Civil Rights Act of 1964, as amended, (42 USC
         ss.ss.


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         2000c, et seq.), the Americans with Disabilities Act or the Illinois
         Human Rights Act, and any and all other federal, state or local laws or
         regulations. Employee agrees not to sue or to file any actions against
         the Released Parties with respect to claims covered by this release.
         This waiver and release shall not apply to claims arising after
         Employee's execution of this Agreement. Notwithstanding the above, this
         waiver and release shall not apply to claims for indemnification
         pursuant to Article 7 of the Company's Articles of Incorporation,
         Article 5 of the Company's Bylaws and the Indemnification Agreement by
         and between the Company and Employee dated as of February 24, 1999.

7.       Employee specifically agrees as follows:

         (a)      Employee is knowingly and voluntarily entering into this
                  Agreement.

         (b)      Employee acknowledges that the Company is providing benefits
                  in the form of payments and compensation, to which Employee
                  would not otherwise be entitled, as part of the consideration
                  for Employee's entering into this Agreement.

         (c)      Employee is hereby advised to consult with an attorney prior
                  to executing this Agreement.

         (d)      Employee understands that she has a period of twenty-one (21)
                  days from the date a copy of this Agreement is provided to her
                  in which to consider and sign the Agreement (during which the
                  offer will remain open) and that Employee has an additional
                  seven (7) days after signing this Agreement within which to
                  revoke acceptance of the Agreement.

         (e)      If during the seven (7)-day revocation period Employee should
                  revoke an acceptance of the Agreement, then this Agreement
                  shall be void.

8.       This Agreement does not constitute an admission of wrongdoing or
         liability for any purpose by the Company or Employee.



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9.       This Agreement sets forth the full understanding and agreement of the
         parties and supersedes any and all other understandings or agreements,
         written or oral. This Agreement shall be interpreted pursuant to
         Illinois law.



INSURANCE AUTO AUCTIONS, INC.                     EMPLOYEE


By:  /s/ Stephen L. Green                         /s/ Linda C. Larrabee
     --------------------------------             ----------------------------
                                                  (Employee)

Its: VP                                           Dated: 6-14-99
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Dated: 6-14-99
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