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EXHIBIT NO. 10(E)
                              EMPLOYMENT AGREEMENT

                  This EMPLOYMENT AGREEMENT, dated as of the 24th day of August,
2001 (this "Agreement"), by and between THE PROGRESSIVE CORPORATION, an Ohio
corporation (the "Company"), and Richard H. Watts (the "Executive").

                  WHEREAS, the Board of Directors of the Company (the "Board")
has determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued dedication of
the Executive, notwithstanding the possibility, threat or occurrence of a Change
of Control (as defined herein). The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the current
Company and in the event of any threatened or pending Change of Control, and to
provide the Executive with compensation and benefits arrangements upon a Change
of Control that ensure that the compensation and benefits expectations of the
Executive will be satisfied and that are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.

                  NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

                  SECTION 1. CERTAIN DEFINITIONS.

                  (a) "Effective Date" means the first date during the Change of
Control Period (as defined herein) on which a Change of Control occurs.
Notwithstanding anything in this Agreement to the contrary, if a Change of
Control occurs and if the Executive's employment with the Company is terminated
prior to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (1) was at the
request of a third party that has taken steps reasonably calculated to effect a
Change of Control or (2) otherwise arose in connection with or in anticipation
of a Change of Control, then "Effective Date" means the date immediately prior
to the date of such termination of employment.

                  (b) "Change of Control Period" means the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that, commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof, the "Renewal Date"), unless previously terminated, the
Change of Control Period shall be automatically extended so as to terminate
three years from such Renewal Date, unless, at least 60 days prior to the
Renewal Date, the Company shall give notice to the Executive that the Change of
Control Period shall not be so extended.

                  (c) "Company" means the Company as hereinbefore defined and
any successor to its business and/or assets as described below whether by
merger, consolidation, purchase or otherwise, that assumes and is bound to
perform this Agreement by operation of law or otherwise.

                  (d) "Affiliated company" means any company controlled by,
controlling or under common control with the Company.


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                  (e) "Change of Control" means:

                      (1) The acquisition by any individual, entity or group
         (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
         Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
         beneficial ownership (within the meaning of Rule 13d-3 promulgated
         under the Exchange Act) of 20% or more of either (A) the
         then-outstanding common shares of the Company (the "Outstanding Company
         Common Shares") or (B) the combined voting power of the
         then-outstanding voting securities of the Company entitled to vote
         generally in the election of directors (the "Outstanding Company Voting
         Securities"); provided, however, that, for purposes of this Agreement,
         the following acquisitions shall not constitute a Change of Control:
         (i) any acquisition directly from the Company, (ii) any acquisition by
         the Company, (iii) any acquisition by any employee benefit plan (or
         related trust) sponsored or maintained by the Company or any affiliated
         company, (iv) any acquisition by any corporation pursuant to a
         transaction that complies with Sections 1(d)(3)(A), 1(d)(3)(B) and
         1(d)(3)(C), or (v) any acquisition of 20% or more of the Outstanding
         Company Common Shares or Outstanding Company Voting Securities by any
         Person who has acquired the Outstanding Company Common Shares or
         Outstanding Company Voting Securities in the ordinary course of
         business for investment purposes only and not with the purpose or
         effect of changing or influencing the control of the Company, or in
         connection with or as a participant in any transaction having such
         purpose or effect ("Investment Intent"), as demonstrated by the filing
         by such Person of a statement on Schedule 13G (including amendments
         thereto) pursuant to Regulation 13D under the Exchange Act, as long as
         such Person continues to hold the Outstanding Company Common Shares or
         Outstanding Company Voting Securities with an Investment Intent, unless
         the Incumbent Board (as defined below) determines, by a majority vote,
         that the acquisition or holding of Outstanding Company Common Shares or
         Outstanding Company Voting Securities by such Person constitutes a
         Change of Control.

                           (2) Individuals who, as of the date hereof,
         constitute the Board (the "Incumbent Board") cease for any reason to
         constitute at least a majority of the Board; provided, however, that
         any individual becoming a director subsequent to the date hereof whose
         election, or nomination for election by the Company's shareholders, was
         approved by a vote of at least a majority of the directors then
         comprising the Incumbent Board shall be considered as though such
         individual were a member of the Incumbent Board, but excluding, for
         this purpose, any such individual whose initial assumption of office
         occurs as a result of an actual or threatened election contest with
         respect to the election or removal of directors or other actual or
         threatened solicitation of proxies or consents by or on behalf of a
         Person other than the Board.

                           (3) Consummation of a reorganization, merger,
         consolidation or sale or other disposition of all or substantially all
         of the assets of the Company (a "Business Combination"), in each case,
         unless, immediately following such Business Combination, (A) all or
         substantially all of the individuals and entities that were the
         beneficial owners of the Outstanding Company Common Shares and the
         Outstanding Company Voting Securities immediately prior to such
         Business Combination beneficially own, directly or indirectly,



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         more than 60% of the then-outstanding common shares and the combined
         voting power of the then-outstanding voting securities entitled to vote
         generally in the election of directors, as the case may be, of the
         corporation resulting from such Business Combination (including,
         without limitation, a corporation that, as a result of such
         transaction, owns the Company or all or substantially all of the
         Company's assets either directly or through one or more subsidiaries)
         in substantially the same proportions as their ownership immediately
         prior to such Business Combination of the Outstanding Company Common
         Shares and the Outstanding Company Voting Securities, as the case may
         be, (B) no Person (excluding any corporation resulting from such
         Business Combination or any employee benefit plan (or related trust) of
         the Company or such corporation resulting from such Business
         Combination) beneficially owns, directly or indirectly, 20% or more of,
         respectively, the then-outstanding common shares of the corporation
         resulting from such Business Combination or the combined voting power
         of the then-outstanding voting securities of such corporation, except
         to the extent that such ownership existed prior to the Business
         Combination, and (C) at least a majority of the members of the board of
         directors of the corporation resulting from such Business Combination
         were members of the Incumbent Board at the time of the execution of the
         initial agreement or of the action of the Board providing for such
         Business Combination; or

                      (4) Approval by the shareholders of the Company of a
         complete liquidation or dissolution of the Company.

                  SECTION 2. EMPLOYMENT PERIOD. The Company hereby agrees to
continue the Executive in its employ, and the Executive hereby agrees to remain
in the employ of the Company, subject to the terms and conditions of this
Agreement, for the period commencing on the Effective Date and ending on the
third anniversary of the Effective Date (the "Employment Period").

                  SECTION 3. TERMS OF EMPLOYMENT.

                  (a) POSITION AND DUTIES.

                      (1) During the Employment Period, (A) the Executive's
         position (including status, offices, titles and reporting
         requirements), authority, duties and responsibilities shall be at least
         commensurate in all material respects with the most significant of
         those held or exercised by and assigned to the Executive at any time
         during the 120-day period immediately preceding the Effective Date and
         (B) the Executive's services shall be performed at the office where the
         Executive was employed immediately preceding the Effective Date or at
         any other location less than 25 miles from such office.

                      (2) During the Employment Period, and excluding any
         periods of vacation and sick leave to which the Executive is entitled,
         the Executive agrees to devote reasonable attention and time during
         normal business hours to the business and affairs of the Company and,
         to the extent necessary to discharge the responsibilities assigned to
         the Executive hereunder, to use the Executive's reasonable best efforts
         to perform faithfully and efficiently such responsibilities to the best
         of his or her ability. During the Employment Period, it shall not be a
         violation of this Agreement for the Executive to (A) serve on
         corporate, civic or


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         charitable boards or committees, (B) deliver lectures, fulfill speaking
         engagements or teach at educational institutions and (C) manage
         personal investments, so long as such activities do not significantly
         interfere with the performance of the Executive's responsibilities as
         an officer or employee of the Company in accordance with this
         Agreement. It is expressly understood and agreed that, to the extent
         that any such activities have been conducted by the Executive prior to
         the Effective Date, the continued conduct of such activities (or the
         conduct of activities similar in nature and scope thereto) subsequent
         to the Effective Date shall not thereafter be deemed to interfere with
         the performance of the Executive's responsibilities to the Company.

                  (b) COMPENSATION.

                      (1) BASE SALARY. During the Employment Period, the
         Executive shall receive an annual base salary (the "Annual Base
         Salary"), which Annual Base Salary shall be at least equal to 12 times
         the highest monthly base salary paid or payable, including any base
         salary that has been earned but deferred, to the Executive by the
         Company and the affiliated companies during the 12-month period
         immediately preceding the month in which the Effective Date occurs. The
         Annual Base Salary shall be paid one-twelfth (1/12th) each month.
         During the Employment Period, the Annual Base Salary shall be reviewed
         at least annually, beginning no more than 12 months after the last
         salary increase awarded to the Executive prior to the Effective Date.
         Any increase in the Annual Base Salary shall not serve to limit or
         reduce any other obligation to the Executive under this Agreement.
         During the Employment Period, the Annual Base Salary shall not be
         reduced after any such increase and the term "Annual Base Salary" shall
         refer to the Annual Base Salary as so increased.

                      (2) ANNUAL BONUS. In addition to the Annual Base Salary,
         the Executive shall be awarded, for each fiscal year ending during the
         Employment Period, an annual bonus (the "Annual Bonus") in cash at
         least equal to the Executive's highest bonus under the Company's
         Executive Bonus and/or Gainsharing Plans, or any comparable bonus under
         any predecessor or successor plan, for the last three full fiscal years
         prior to the Effective Date (annualized, in the event that the
         Executive was not employed by the Company for the whole of such fiscal
         year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid
         no later than the end of the third month of the fiscal year next
         following the fiscal year for which the Annual Bonus is awarded, except
         to the extent that the Executive shall elect to defer the receipt of
         such Annual Bonus pursuant to and in accordance with the Company's
         Executive Deferral Plan or any successor plan thereto then in effect.

                      (3) COMPANY STOCK OPTION PLANS. During the Employment
         Period, the Executive shall be entitled to participate in all stock
         option plans, practices, policies and programs applicable generally to
         other peer executives of the Company and the affiliated companies, but
         in no event shall such plans, practices, policies and programs provide
         the Executive with incentive opportunities (measured with respect to
         both regular and special incentive opportunities, to the extent, if
         any, that such distinction is applicable), in each case, less
         favorable, in the aggregate, than the most favorable of those provided
         by the Company and the affiliated companies for the Executive under
         such stock option plans, practices, policies and programs as in effect
         at any time during the 120-day period immediately


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         preceding the Effective Date or, if more favorable to the Executive,
         those provided generally at any time after the Effective Date to other
         peer executives of the Company and the affiliated companies. The basis
         for the valuation for such stock option awards for Executive shall be
         the highest applicable percent of salary within the last three fiscal
         years prior to the Effective Date, based upon Executives job
         classification, with the target award value divided by a value per
         share developed through a modified Black-Scholes pricing model to
         determine the number of option shares to be awarded, such approach
         being consistent with that described in a notice of annual meeting of
         shareholders of the Company within the last three full fiscal years
         prior to the Effective Date, which yields the highest value of stock
         option awards.

                      (4) SAVINGS, RETIREMENT AND WELFARE BENEFIT PLANS. During
         the Employment Period, the Executive and as applicable the Executive's
         family, as the case may be, shall be eligible for participation in and
         shall receive all benefits under any incentive, savings, retirement
         plans and welfare benefit plans, policies, practices and programs
         provided by the Company and the affiliated companies (including,
         without limitation, medical, prescription, dental, disability, employee
         life, group life, accidental death and travel accident insurance plans
         and programs) to the extent applicable generally to other peer
         executives of the Company and the affiliated companies, but in no event
         shall such plans, practices, policies and programs provide the
         Executive and/or the Executive's family with benefits that are less
         favorable, in the aggregate, than the most favorable of such plans,
         practices, policies and programs in effect for the Executive at any
         time during the 120-day period immediately preceding the Effective Date
         or, if more favorable to the Executive, those provided generally at any
         time after the Effective Date to other peer executives of the Company
         and the affiliated companies. In the event that because of applicable
         law, or for other good and valid reasons, such applicable benefit plans
         cannot be provided Executive by the Company following Change of
         Control, the Company by agreement with Executive, which agreement shall
         not be unreasonably withheld, may provide Executive with an amount
         having an overall equivalent tax adjusted value for the applicable
         period to those employee benefits, programs and the like, not otherwise
         being provided by the Company to Executive.

                      (5) EXPENSES. During the Employment Period, the Executive
         shall be entitled to receive prompt reimbursement for all reasonable
         expenses incurred by the Executive in the furtherance of the business
         or affairs of the Company or any of the Affiliated companies in
         accordance with the most favorable policies, practices and procedures
         of the Company and the affiliated companies in effect for the Executive
         at any time during the 120-day period immediately preceding the
         Effective Date or, if more favorable to the Executive, as in effect
         generally at any time thereafter with respect to other peer executives
         of the Company and the affiliated companies.

                      (6) OFFICE AND SUPPORT STAFF. During the Employment
         Period, the Executive shall be entitled to an office or offices of a
         size and with furnishings and other appointments, and to personal
         secretarial and other assistance, at least equal to the most favorable
         of the foregoing provided to the Executive by the Company and the
         affiliated


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         companies at any time during the 120-day period immediately preceding
         the Effective Date or, if more favorable to the Executive, as provided
         generally at any time thereafter with respect to other peer executives
         of the Company and the affiliated companies.

                      (7) VACATION. During the Employment Period, the Executive
         shall be entitled to paid vacation in accordance with the most
         favorable plans, policies, programs and practices of the Company and
         the affiliated companies as in effect for the Executive at any time
         during the 120-day period immediately preceding the Effective Date or,
         if more favorable to the Executive, as in effect generally at any time
         thereafter with respect to other peer executives of the Company and the
         affiliated companies.

                  SECTION 4. TERMINATION OF EMPLOYMENT.

                  (a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically if the Executive dies during the Employment Period. If
the Company determines in good faith that the Disability (as defined herein) of
the Executive has occurred during the Employment Period (pursuant to the
definition of "Disability"), it may give to the Executive written notice in
accordance with Section 11(b) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. "Disability" means the absence of the
Executive from the Executive's duties with the Company on a full-time basis for
180 consecutive business days as a result of incapacity due to mental or
physical illness that is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.

                  (b) CAUSE. The Company may terminate the Executive's
employment during the Employment Period for Cause. Subject to the last paragraph
of Section 4(b), "Cause" means:

                      (1) the willful failure of the Executive to perform, and
         the continuance of such failure to perform for 60 days following the
         Executive's receipt for notice from the Company, substantially the
         Executive's duties with the Company or any affiliated company (other
         than any such failure resulting from incapacity due to physical or
         mental illness), after a written demand for substantial performance is
         delivered to the Executive by the Board or the Chief Executive Officer
         of the Company that specifically identifies the manner in which the
         Board or the Chief Executive Officer of the Company believes that the
         Executive has not substantially performed the Executive's duties; or

                      (2) the willful engaging by the Executive in illegal
         conduct or gross misconduct that is materially and demonstrably
         injurious to the Company; or

                      (3) any violation of the Code of Conduct of the Company,
         as in effect immediately prior to the Effective Date.


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For purposes of this Section 4(b), no act, or failure to act, on the part of the
Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of
the Company or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company.

                  Notwithstanding the foregoing, the cessation of employment of
the Executive shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel for the Executive, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in Sections 4(b)(1) or 4(b)(2), and specifying
the particulars thereof in detail.

                  (c) GOOD REASON. The Executive's employment may be terminated
by the Executive for Good Reason. "Good Reason" means:

                      (1) the assignment to the Executive of any duties
         inconsistent in any respect with the Executive's position (including
         status, offices, titles and reporting requirements), authority, duties
         or responsibilities as contemplated by Section 3(a), or any other
         action by the Company that results in a diminution in such position,
         authority, duties or responsibilities, excluding for this purpose an
         isolated, insubstantial and inadvertent action not taken in bad faith
         and that is remedied by the Company promptly after receipt of notice
         thereof given by the Executive;

                      (2) any failure by the Company to comply with any of the
         provisions of Section 3(b), other than an isolated, insubstantial and
         inadvertent failure not occurring in bad faith and that is remedied by
         the Company promptly after receipt of notice thereof given by the
         Executive;

                      (3) the Company's requiring the Executive to be based at
         any office or location other than as provided in Section 3(a)(1)(B) or
         the Company's requiring the Executive to travel on Company business to
         a substantially greater extent than required immediately prior to the
         Effective Date;

                      (4) any purported termination by the Company of the
         Executive's employment otherwise than as expressly permitted by this
         Agreement; or

                      (5) any failure by the Company to comply with and satisfy
         Section 10(c).

For purposes of this Section 4(c), any good faith determination of Good Reason
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a



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termination by the Executive for any reason during the 30-day period immediately
following the first anniversary of the Effective Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.

                  (d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b).
"Notice of Termination" means a written notice that (1) indicates the specific
termination provision in this Agreement relied upon, (2) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated, and (3) if the Date of Termination (as defined herein)
is other than the date of receipt of such notice, specifies the Date of
Termination (which Date of Termination shall be not more than 30 days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance that contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's respective rights hereunder.

                  (e) DATE OF TERMINATION. "Date of Termination" means (1) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified in the Notice of Termination, as the case may be, (2)
if the Executive's employment is terminated by the Company other than for Cause
or Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination, and (3) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.

                  SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (A)
GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the
Employment Period, the Company terminates the Executive's employment other than
for Cause or Disability or the Executive terminates employment for Good Reason:

                  (1) the Company shall pay to the Executive, in a lump sum in
         cash within 30 days after the Date of Termination, the aggregate of the
         following amounts:

                      (A) the sum of (i) that portion of the Executive's Annual
                  Base Salary that has accrued prior to the Date of Termination
                  to the extent not theretofore paid, (ii) the product of (x)
                  the higher of (I) the Recent Annual Bonus and (II) the Annual
                  Bonus paid or payable, including any bonus or portion thereof
                  that has been earned but deferred (and annualized for any
                  fiscal year consisting of less than 12 full months or during
                  which the Executive was employed for less than 12 full
                  months), for the most recently completed fiscal year during
                  the Employment Period, if any (such higher amount, the
                  "Highest Annual Bonus") and (y) a fraction, the numerator of
                  which is the number of days in the current fiscal year through
                  the Date of Termination and the denominator of which is 365,
                  and (iii) any compensation previously deferred by the
                  Executive (together with any accrued interest or earnings


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                  thereon) and any accrued vacation pay, in each case, to the
                  extent not theretofore paid (the sum of the amounts described
                  in subclauses (i), (ii) and (iii), the "Accrued Obligations");
                  and

                      (B) the amount equal to the higher of (i) the product of
                  (x) two and (y) the sum of (1) the Executive's Annual Base
                  Salary and (2) the Highest Annual Bonus or (ii) the product of
                  (x) four and (y) the Executive's Annual Base Salary; less

                      (C) the value of amounts paid or to be paid to the
                  Executive under any severance pay plans or programs of the
                  Company then in effect.

                  (2) for two years after the Executive's Date of Termination,
         or such longer period as may be provided by the terms of the
         appropriate plan, program, practice or policy, the Company shall
         continue benefits to the Executive and/or the Executive's family at
         least equal to those that would have been provided to them in
         accordance with the plans, programs, practices and policies described
         in Section 3(b)(4) if the Executive's employment had not been
         terminated or, if more favorable to the Executive, as in effect
         generally at any time thereafter with respect to other peer executives
         of the Company and the affiliated companies and their families,
         provided, however, that, if the Executive becomes re-employed with
         another employer and is eligible to receive medical or other welfare
         benefits under another employer provided plan, the medical and other
         welfare benefits described herein shall be secondary to those provided
         under such other plan during such applicable period of eligibility. For
         purposes of determining eligibility (but not the time of commencement
         of benefits) of the Executive for retiree benefits pursuant to such
         plans, practices, programs and policies, the Executive shall be
         considered to have remained employed until three years after the Date
         of Termination and to have retired on the last day of such period;

                  (3) the Company shall, at its sole expense as incurred,
         provide the Executive with outplacement services the scope and provider
         of which shall be selected by the Executive in the Executive's sole
         discretion; and

                  (4) to the extent not theretofore paid or provided, the
         Company shall timely pay or provide to the Executive any other amounts
         or benefits required to be paid or provided to the Executive or that
         the Executive is eligible to receive under any plan, program, policy or
         practice or contract or agreement of the Company and the affiliated
         companies (such other amounts and benefits, the "Other Benefits").

                  (b) DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's estate,
beneficiaries or legal representatives under this Agreement, other than for
payment of Accrued Obligations and the timely payment or provision of the Other
Benefits. The Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of the Other Benefits, the term
"Other Benefits" as utilized in this Section 5(b) shall include, without
limitation, and the Executive's estate and/or beneficiaries shall be entitled to
receive, benefits at least equal to the most favorable benefits provided by the
Company and the


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<PAGE>

affiliated companies to the estates and beneficiaries of peer executives of the
Company and the affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and the affiliated companies and their beneficiaries.

                  (c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
the Other Benefits. The Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to the
provision of the Other Benefits, the term "Other Benefits" as utilized in this
Section 5(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and the
affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with respect to other peer
executives of the Company and the affiliated companies and their families.

                  (d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment is terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive (1) that portion of the Executive's Annual
Base Salary that has accrued prior to the Date of Termination, (2) the amount of
any compensation previously deferred by the Executive, and (3) the Other
Benefits, in each case, to the extent theretofore unpaid. If the Executive
voluntarily terminates employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for the Accrued Obligations and the
timely payment or provision of the Other Benefits. In such case, all the Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.

                  SECTION 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or the affiliated companies and for which the Executive may qualify, nor,
subject to Section 11(f), shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or the affiliated companies. Amounts that are vested benefits or that
the Executive is otherwise entitled to receive under any plan, policy, practice
or program of or any contract or agreement with the Company or the affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or agreement,
except as explicitly modified by this Agreement.



                                                                         Page 10
<PAGE>

                  SECTION 7. FULL SETTLEMENT. The Company's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be subject to set-off or otherwise affected by
any counterclaim, recoupment, defense, or other claim, right or action that the
Company or any of the Affiliated companies may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement, and such amounts shall
not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses that the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus, in each case, interest on any delayed payment at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").

                  SECTION 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

                  (a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company or the affiliated companies to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise but
determined without regard to any additional payments required under this Section
8) (the "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code, as the same may be hereafter modified or amended or any successor
provision, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, collectively, the "Excise Tax"), then the Executive shall be entitled
to receive an additional payment (the "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

                  (b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by PricewaterhouseCoopers LLP or such other nationally recognized independent
accounting firm as may be designated by the Executive (the "Accounting Firm").
The Accounting Firm shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the receipt of notice from
the Executive that there has been a Payment or such earlier time as is requested
by the Company. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change of Control,
the Executive shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 8, shall be paid


                                                                         Page 11
<PAGE>


by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments that will not have been made by the Company should have been made (the
"Underpayment"), consistent with the calculations required to be made hereunder.
In the event the Company exhausts its remedies pursuant to Section 8(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.

                  (c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 10 business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that the Company desires to contest such claim,
the Executive shall:

                  (1) give the Company any information reasonably requested by
         the Company relating to such claim,

                  (2) take such action in connection with contesting such claim
         as the Company shall reasonably request in writing from time to time,
         including, without limitation, accepting legal representation with
         respect to such claim by an attorney reasonably selected by the
         Company,

                  (3) cooperate with the Company in good faith in order
         effectively to contest such claim, and

                  (4) permit the Company to participate in any proceedings
         relating to such claim; provided, however, that the Company shall bear
         and pay directly all costs and expenses (including additional interest
         and penalties) incurred in connection with such contest, and shall
         indemnify and hold the Executive harmless, on an after-tax basis, for
         any Excise Tax or income tax (including interest and penalties with
         respect thereto) imposed as a result of such representation and payment
         of costs and expenses. Without limitation on the foregoing provisions
         of this Section 8(c), the Company shall control all proceedings taken
         in connection with such contest, and, at its sole option, may pursue or
         forgo any and all administrative appeals, proceedings, hearings and
         conferences with the applicable taxing authority in respect of such
         claim and may, at its sole option, either direct the Executive to pay
         the tax claimed and sue for a refund or contest the claim in any
         permissible manner, and the Executive agrees to prosecute such contest
         to a determination before any administrative tribunal, in a court of
         initial jurisdiction and in one or more appellate courts, as the
         Company



                                                                         Page 12
<PAGE>

         shall determine; provided, however, that, if the Company directs the
         Executive to pay such claim and sue for a refund, the Company shall
         advance the amount of such payment to the Executive, on an
         interest-free basis, and shall indemnify and hold the Executive
         harmless, on an after-tax basis, from any Excise Tax or income tax
         (including interest or penalties with respect thereto) imposed with
         respect to such advance or with respect to any imputed income with
         respect to such advance; and provided, further, that any extension of
         the statute of limitations relating to payment of taxes for the taxable
         year of the Executive with respect to which such contested amount is
         claimed to be due is limited solely to such contested amount.
         Furthermore, the Company's control of the contest shall be limited to
         issues with respect to which the Gross-Up Payment would be payable
         hereunder, and the Executive shall be entitled to settle or contest, as
         the case may be, any other issue raised by the Internal Revenue Service
         or any other taxing authority.

                  (d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), the Executive becomes entitled
to receive any refund with respect to such claim, upon receipt of such refund,
the Executive shall (subject to the Company's complying with the requirements of
Section 8(c)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to Section 8(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.

                  SECTION 9. CONFIDENTIAL INFORMATION. The Executive shall hold
in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or the
affiliated companies, and their respective businesses, which information,
knowledge or data shall have been obtained by the Executive during the
Executive's employment by the Company or the affiliated companies and which
information, knowledge or data shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). For two years after termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those persons designated by the Company. In no event shall
an asserted violation of the provisions of this Section 9 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.

                  SECTION 10. SUCCESSORS.

                  (a) This Agreement is personal to the Executive, and, without
the prior written consent of the Company, shall not be assignable by the
Executive other than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.



                                                                         Page 13
<PAGE>
                  (b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.

                  (c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.

                  SECTION 11. MISCELLANEOUS.

                  (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified other than by a written agreement executed by the parties
hereto or their respective successors, permitted assigns and legal
representatives.

                  (b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

                  if to the Executive:

                      Richard H. Watts at his home address



                  if to the Company:

                      The Progressive Corporation
                      300 North Commons Boulevard - OHF11
                      Mayfield Village, Ohio 44143
                      Attention: Chief Legal Officer

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
                  (c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

                  (d) This Agreement shall not be deemed to modify, amend or
supplement the terms of any existing benefit plan or program of the Company.

                  (e) The Company may withhold from any amounts payable under
this Agreement such United States federal, state or local or foreign taxes or
other items as shall be required to be withheld pursuant to any applicable law
or regulation.


                                                                         Page 14
<PAGE>
                  (f) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.

                  (g) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a), prior to the Effective Date, the Executive's
employment and/or this Agreement may be terminated by either the Executive or
the Company at any time prior to the Effective Date, in which case the Executive
shall have no further rights under this Agreement. From and after the Effective
Date, this Agreement shall supersede any other agreement between the parties
with respect to the subject matter hereof.

         IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from the Board, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.



                                                     /s/ Richard H. Watts
                                                   ---------------------------
                                                       Richard H. Watts


                                                   THE PROGRESSIVE CORPORATION


                                                   By: /s/ Glenn Renwick
                                                       -----------------------
                                                   Name:   Glenn Renwick
                                                        ----------------------
                                                   Title:  CEO
                                                        ----------------------




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