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                                                                   Exhibit 10.18

                             Employment Agreement

     THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
10/th/ day of May, 1999, between Highlands Insurance Group, Inc., a Delaware
corporation (the "Company") and Willis T. King, Jr. ("Employee").

     WHEREAS, it is the mutual desire of the Company and Employee that the
Company employ Employee on the terms and conditions described in this Agreement.

     Now, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:

     1.  Employment.  The Company hereby employs Employee for the Employment
         ----------
Period specified in Section 2 below as Chairman, President and Chief Executive
Officer of the Company.  Employee hereby accepts such employment and agrees to
diligently and to the best of Employee's abilities perform the duties and
services appropriate to such positions and to devote his full business time and
efforts to the performance of the duties of such position or positions, which
shall include, but not be limited to, managing the operations of the Company.
Employee further agrees to at all times comply with and be subject to the
policies and procedures the Company may establish from time to time, so long as
such policies and procedures do not violate any applicable laws or regulations.

     2.  Employment Period.  The period of Employee's employment under this
         -----------------
Agreement (the "Employment Period") shall commence on June 1, 1999 and shall end
upon the earlier of (i) the date three months following receipt by Employee of
written notice of termination of the Employment Period from the Company (but in
no event earlier than the third anniversary of this Agreement) or (ii) the
termination of the Employment Period pursuant to Section 6 below.

     3.   Compensation.
          ------------

          (a)  As compensation for all services rendered and to be rendered by
Employee pursuant to this Agreement, the Company agree to pay Employee:

               (i)  during the Employment Period, an annual salary (the "Base
               Annual Salary") of $420,000 and

               (ii) an annual incentive of up to 150% of Employee's Base Annual
               Salary based on the performance of the Company as measured by the
               achievement of specified performance objectives.  The objectives
               will be determined by the board of directors of the Company (the
               "Board of Directors") in its sole discretion.  Employee shall
               receive a minimum bonus for 1999 and 2000 of
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               $210,000 per year, payable in a lump sum on or prior to April 15
               of the next year. Any additional bonus amounts for 1999 and 2000
               and any other bonuses shall be payable in accordance with the
               Company's current practice for all key executives under its
               Management Incentive Plan ("MIP"). Exhibit A is a summary of the
               MIP.

          (b)  The Base Annual Salary shall be reviewed no less frequently than
annually by the Compensation Committee of the Board of Directors and may be
increased upon the approval of the Board of Directors in its sole discretion.
The Base Annual Salary shall accrue and be payable in accordance with the
payroll practices of the Company as in effect from time to time.

     4.   Other Employment Benefits.
          -------------------------

          (a) During the Employment Period, Employee shall be entitled to such
other benefits as are customarily accorded the executives of the Company,
including, without limitation, the right to participate in employee benefit
programs maintained by the Company, including a health and life insurance
program and disability and retirement plans, provided, that nothing contained
herein shall be construed to require the Company to establish or maintain any
policy or program.  The Employee will be entitled to five weeks vacation
annually.

          (b) The Company shall grant Employee an option under the Company's
1995 Director's Stock Plan exercisable for 150,000 shares of common stock, par
value of $0.01 per share, of the Company's Common Stock ("Common Stock").  Such
option shall (i) have an exercise price per share equal to the closing price of
the Common Stock on the New York Stock Exchange on May 10, 1999, (ii) vest in
three equal annual installments commencing on the first anniversary of this
Agreement, (iii) fully vest on a change of control of the Company, or the death
or termination by reason of disability of Employee, the termination of Employee
without Cause, or the voluntary termination by Employee for Good Reason, and
(iv) expire on the tenth anniversary of this Agreement.  The Company agrees to
use reasonable efforts to register the sale by Employee of the shares of Common
Stock issuable upon exercise of such options under the Securities Act of 1933,
as amended.

          (c) Employee will purchase $5 million of Common Stock from the Company
at a price per share equal to the closing price of the Common Stock on the New
York Stock Exchange on May 10, 1999.  Employee will be issued 250,000 shares of
Restricted Stock under the Company's Restricted Stock Plan, with a base price
equal to the price of the Common Stock purchased from the Company.  If Employee
retires, is terminated by reason of death or disability, is terminated without
Cause or voluntarily terminates for Good Reason after the three-year period
specified in paragraph 6(d) of the Plan, his Restricted Shares will not be
forfeited on account of such retirement or termination.

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          (d) In the case of a conflict in terms between this Agreement and the
Directors' Stock Plan or the Restricted Stock Plan, as the case may be, the
terms of this Agreement shall govern.

     5.   Expenses.  Upon submission of expense vouchers and corresponding
          --------
receipts and related documentation in accordance with Company policies then in
effect, the Company shall promptly reimburse Employee for all reasonable
expenses incurred by Employee on behalf of the Company or in accordance with
Employee's performance of Employee's duties hereunder including, without
limitation, all reasonable travel, entertainment and lodging expenses incurred
by Employee in connection with the performance of his duties hereunder.

     6.   Termination.  The Employment Period may be terminated pursuant to any
          -----------
one or more of the following provisions:

          (a) The Employment Period may be terminated at any time by the Company
by written notice to Employee or by Employee by written notice to the Company.
Upon such termination, all of Employee's rights under Sections 3, 4, and 5 above
                                                      ----------  -      -
shall immediately terminate, except that the Company will pay to Employee all
amounts accrued in respect of periods prior to such termination. If such
termination (i) is by the Company without Cause (as hereinafter defined) or by
the Employee with Good Reason (as hereinafter defined) and (ii) is other than
the result of Employee's death or Disability (as hereinafter defined), the
Company shall pay to Employee severance pay during the Severance Period (as
hereinafter defined) in an amount equal to the amount of salary and pro rated
portion of any bonus that would otherwise be payable to Employee under this
Agreement (assuming that the Base Term (as hereinafter defined) were extended,
if necessary, so as to end concurrently with the end of the Severance Period),
based upon the Base Annual Salary and the bonus terms in effect on the date of
such termination ("Severance Payments"). Such Severance Payments shall be
payable in installments during the Severance Period on the same basis as salary
and bonus would be otherwise be payable to Employee during the Base Term. In
addition, Employee shall be entitled to all benefits accorded by Section 4(a) so
                                                                 ------------
along as Employee is eligible to receive Severance Payments.

          (b) The term "Cause" shall mean (i) fraud, dishonesty, or similar
willful misconduct on the part of Employee, (ii) a material breach by Employee
of any of his representations or obligations under this Agreement (provided that
Employee shall first be notified of an be given a reasonable opportunity to cure
such breach), (iii) gross negligence by Employee in the performance of the
services contemplated by this Agreement, or (iv) conviction of Employee (or the
entering of a plea of guilty, nolo contendere, or request for deferred
adjudication) for fraud, misappropriation, embezzlement, financial misconduct,
any felony, or any lesser criminal offense which carries a potential penalty of
imprisonment for a term of one year or more and/or a fine of $25,000 or more,
whether or not a lesser penalty or fine is assessed.  The term "Good Reason"
shall mean, without Employee's written consent, (i) any reduction in the amount
of Employee's Base Annual Salary, (ii) any material reduction in Employee's
title, duties,

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or responsibilities with the Company, (iii) the failure of the Board of
Directors to discharge an employee of the Company, at the request of Employee,
for an act that would constitute "Cause" under clause (i), (iii) or (iv) of the
immediately prior sentence, or (iv) a material breach by the Company of its
obligations under this Agreement. Notwithstanding the foregoing sentence, the
occurrence of any of the events described in the foregoing sentence will not
constitute Good Reason unless Employee gives the Company written notice that
such event constitutes Good Reasons, and the Company thereafter fails to cure
the event within 30 days after receipt of such notice. The term "Severance
Period" shall mean a period of time equal to the greater of (i) two years or
(ii) the period commencing on the date of Employee's termination of employment
with the Company and ending on the last day of the Base Term. The term "Base
Term" shall mean the period from the date hereof to and including the third
anniversary of this Agreement.

          (c) If employee shall terminate his employment with the Company
without Good Reason or shall die during the Employment Period, the Employment
Period shall terminate as of the date of such termination, all of Employee's
rights under Sections 3, 4 (other than subsections 4(b) and 4(c)), and 5 above
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shall immediately terminate, and the Company shall pay to Employee or Employee's
estate or legal representative only the amount of salary and pro rated portion
of any bonus accrued to Employee under this Agreement through the date of such
termination without Good Reason or death.

          (d) If Employee is unable to discharge his duties hereunder for a
period of four consecutive months, or for a total of six months in any 12-month
period, by reason of physical or mental illness, injury, or incapacity
("Disability"), the Company may, by written notice to Employee, terminate the
Employment Period.  In such case, all of Employee's rights under Sections 3, 4,
                                                                 ----------  -
and 5 above shall immediately terminate, and the Company shall pay to Employee
    -
only the amount of salary and pro rated portion of any bonus accrued to Employee
under this Agreement through the date of such termination.  During any such
period in which Employee is unable to discharge his duties hereunder, Employee's
Base Annual Salary shall be reduced by the amount of any Company sponsored
disability benefits paid to Employee during such period.

          (e) The Severance Payments paid to Employee shall be in consideration
of Employee's continuing obligations hereunder after such termination
(including, without limitation, or Employee's obligations under Section 10
                                                                ----------
hereof).  Employee shall not be under any duty or obligation to seek or accept
other employment following a termination of employment pursuant to which
Severance Payments are owing, and Severance Payments shall not be reduced by any
amounts earned by Employee from subsequent employment or as a self-employed
individual during the Severance Period.  Employee's rights under this Section
                                                                      -------
6(e) are Employee's sole and exclusive rights against the Company or its
----
affiliates under this Agreement and the Company's sole and exclusive liability
to Employee under this Agreement, for the termination of his Employment
relationship with the Company.  Employee covenants not to sue or lodge any
claim, demand or cause of action against the Company based upon

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Employee's termination of employment under this Agreement for any moneys other
than those specified in Section 6(a). If Employee breaches this covenant, the
                        ------------
Company shall be entitled to recover from Employee all sums expended by the
Company (including costs and attorneys' fees) in connection with such suit claim
demand or cause of action. Nothing contained in Section 6 shall be construed to
                                                ---------
be a waiver by Employee of any benefits accrued for or due Employee through the
date of termination of Employee's employment under any employee benefit plan (as
such term is defined in the Employees' Retirement Income Security Act of 1974,
as amended) maintained by the Company.

     7.  Representations by Employee.  Employee hereby represents and warrants
         ---------------------------
to the Company that (a) Employee's execution and delivery of this Agreement and
his performance of his duties and obligations hereunder will not conflict with,
or cause a default under, or give any party a right to damages under, or to
terminate, any other agreement to which Employee is a party or by which he is
bound, and (b) there are no restrictions, agreements, or understandings that
would make unlawful Employee's execution or delivery of this Agreement or his
employment hereunder.

     8.  Arbitration.
         -----------

         (a)  Any controversy or claim arising out or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
("AAA"), and judgment on the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof. Any arbitration brought under the
terms of this Agreement shall be conducted in the manner set forth in this
Section 8.
---------

         (b)  In accordance with the rules of the AAA, each of the parties
hereto shall appoint one person as an arbitrator. The two arbitrators so chosen
shall select a third impartial arbitrator within ten (10) days of the date on
which the second arbitrator is selected. The three arbitrators shall determine
all questions presented to them by majority vote. The decision of a majority of
the arbitrators shall be final and conclusive on the parties hereto.

         (c)  The arbitration hearing shall be held at a location to be
determined by the parties hereto in good faith in Mercer County, New Jersey.

         (d)  The parties agree that, subject to the rulings and scheduling of
the arbitrators, the following time limitations shall govern the arbitration
proceedings conducted under the terms of this Agreement.

                    (i)   Any demand for arbitration must be filed within a
     reasonable time following the date on which the dispute arises or the
     alleged breach occurs.

                    (ii)  Each party must select an arbitrator within thirty
     (30) days of receipt of notice that an arbitration proceeding has
     commenced. In the event that no such selection is made, the arbitrator
     selected by the other party may conduct the arbitration proceeding without
     selecting any other arbitrator.

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                    (iii) The hearing must be held thirty (30) days of the date
     on which the third arbitrator is selected.

          (e)  Costs of arbitration hereunder shall be borne by the Company.
Unless the arbitrators determine that Employee did not have a reasonable basis
for asserting his position with respect to the dispute in questions, the Company
shall also reimburse Employee for his reasonable attorneys' fees incurred with
respect to any arbitration. Pending the resolution of any arbitration or court
proceeding, the Company shall continue payment of all amounts due Employee under
this Agreement and all benefits to which Employee is entitled at the time such
dispute arises (other than the amounts which are the subject of such dispute).

     9.   Taxes and Other Deductions.  The Company shall have the right to
          --------------------------
deduct from any compensation paid to Employee or his estate or legal
representative under this Agreement all taxes and other amounts which may be
required to be deducted or withheld by law (including, without limitation,
income tax withholding and social security payments), whether such laws are now
in effect or become effective after the date of this Agreement.

     10.  Noncompetition; Confidentiality
          -------------------------------

          (a)  During Employee's employment with the Company and for an
additional period of two years immediately following Employee's employment with
the Company (the "Restriction Period"), Employee shall not, directly or
indirectly, (i) solicit any employee of the Company to terminate his or her
employment with the Company or (ii) call upon or solicit, with the intent to
divert or take away, or attempt to call upon or solicit, with the intent to
divert or take away, or divert or take away, any clients, policyholders, agents,
customers, or accounts of the Company.

          (b)  During and after Employee's employment with the Company, Employee
shall not use for his personal benefit, or disclose, communicate, or divulge to,
or use for the direct or indirect benefit of any person, firm, association, or
company other than the Company, any Confidential Information. "Confidential
Information" means information relating to the processes, products, services,
customers, agents, or operations of the Company or any subsidiary thereof that
is not generally known, is proprietary to the Company or such subsidiary and is
made known to Employee or learned or acquired by Employee while in the employ of
the Company. However, Confidential Information shall not include under any
circumstances any information with respect to the foregoing matters that becomes
publicly available through no fault of Employee. All materials or articles of
information of any kind furnished to Employee by the Company or developed by
Employee in the course of his employment hereunder are and shall remain the sole
property of the Company; and if the Company requests the return of such
information at

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any time during, upon, or after the termination of Employee's employment,
Employee shall immediately deliver the same to the Company.

          (c) Employee acknowledges that, in view of the nature of the business
in which the Company is engaged, the restrictions contained in Section 10(a) and
                                                               -------------
10(b) above (the "Restrictions") are reasonable and necessary in order to
-----
protect the legitimate interests of the Company, and that any violation thereof
would result in irreparable injuries to the Company, and Employee therefore
further acknowledges that, in the event Employee violates, or threatens to
violate, any of such Restrictions, the Company shall be entitled to obtain from
any court of competent jurisdiction, without the posting of any bond or other
security, preliminary and permanent injunctive relief as well as damages and an
equitable accounting of all earnings, profits, and other benefits arising from
such violation, which rights shall be cumulative and in addition to any other
rights or remedies in law or equity to which the Company may be entitled.

          (d) If any Restriction, or any part thereof, shall be determined in
any judicial or administrative proceeding to be invalid or unenforceable, the
remainder of the Restrictions shall not thereby be affected and shall be given
full effect, without regard to the invalid provisions. If the period of time or
the area specified in the Restrictions shall be determined in any judicial or
administrative proceeding to be unreasonable, then the court or administrative
body shall have the power to reduce the period of time or the area covered and,
in its reduced form, such provisions shall then be enforceable and shall be
enforced.

          (e) If Employee violates any of the Restrictions, the applicable
restrictive period shall be tolled from the time of the Commencement of any such
violation until such time as such violation shall be cured by Employee to the
reasonable satisfaction of the Company.

          (f) Employee may not engage, directly or indirectly, in any other
business, investment, or activity which (i) substantially interferes with
Employee's performance of his duties hereunder (ii) is contrary to the best
interests of the Company, or (iii) requires such portion of Employee's business
time as to render compliance with Section 1 impracticable. In that regard,
                                  ---------
subject toSection 10(g), Employee may serve on the board of directors (or
                -------------
comparable controlling body) of corporations or other legal entities of
Employee's choice so long as service on any such board or controlling body does
not constitute a violation of federal or state statutory provisions, or related
rules and regulations pertaining to interlocking directorships, and the meeting
times of such boards or controlling bodies do not materially conflict with the
meeting times of the Board of Directors. Employee acknowledges and agrees that
Employee owes certain duties to the Company under applicable law and agrees to
do not act which would intentionally injure the Company's business, interests,
or reputation. In keeping with Employee's fiduciary duties to the Company,
Employee agrees that Employee shall not knowingly become involved in a conflict
of interest with the Company, or upon discovery thereof, allow such a conflict
to continue. Moreover, Employee agrees that Employee shall disclose to

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the Audit Committee of the Board of Directors any facts which might reasonably
be expected to involve a conflict of interest with the Company.

          (g) Employee may not serve on the Board of Directors of any entity
other than the Company during the term of this Agreement without the approval of
the Audit Committee of the Board of Directors in accordance with the Company's
policies and procedures regarding such service, which approval will not be
unreasonably withheld. The Board of Directors of the Company consents to
Employee's service on the following boards of directors on which he is currently
serving: SCPIE Holdings, Inc.; BCSI Holdings, Inc.; and Homeowners' Holdings,
Inc.

     11.  Notices.  Any notice or communication given pursuant to this Agreement
          -------
must be in writing and (a) delivered personally, (b) sent by telefacsimile or
other similar facsimile transmission, (c) delivered by overnight express, or (d)
sent by registered or certified mail, postage prepaid, as follows:

                    (i)  If to Employee:

                              Willis T. King, Jr.
                              122 Prospect Street
                              Summit, New Jersey 07901
                              Facsimile Number: (908) 277-0329

                    with a copy to:

                              Russell L. Hewit, Esq.
                              Dughi & Hewit
                              340 North Avenue
                              Cranford, New Jersey 07016
                              Facsimile Number: (908) 272-0909

                    (ii) If to the Company:

                              Highlands Insurance Group, Inc.
                              1000 Lenox Drive
                              Lawrenceville, NJ 08648
                              Attention: General Counsel
                              Facsimile Number: (609) 219-1774

All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section will (A) if delivered personally
or by overnight express, be deemed given upon delivery; (B) if delivered by
telefacsimile or similar facsimile transmission, be deemed given when
electronically confirmed; and (C) if sent by registered or certified mail, be
deemed given when received.  Any party from time to time may change its address
for the purpose of notices to that party by giving a similar

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notice specifying a new address, but no such notice will be deemed to have been
given until it is actually received by the party sought to be charged with the
contents thereof.

     12.  Entire Agreement.  This Agreement, and the plans referenced in this
          ----------------
Agreement, constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and (other than as to the employee benefit
plans and practices of the Company) supersedes all prior communications,
agreements, understandings, representations, and warranties, whether oral or
written, between the parties hereto with respect to the subject matter hereof.
Other than the employee benefit plans and practices of the Company, there are no
oral or written agreements, understandings, representations, or warranties
between the parties hereto with respect to the subject matter hereof other than
those set forth in this Agreement.

     13.  Assignment and Amendment of Agreement.  This Agreement will be binding
          -------------------------------------
upon the parties hereto and their respective successors and permitted assignees.
Because Employee's duties and services hereunder are special, personal and
unique in nature, Employee may not transfer, sell or otherwise assign his
rights, obligations or benefits under this Agreement.  This Agreement may be
modified or amended only by a writing duly executed on behalf of each party
hereto.

     14.  Governing Law.  This Agreement will be governed by and construed and
          -------------
enforced in accordance with the Laws of the State of New Jersey (without regard
to the principles of conflicts of law) applicable to a contract executed and to
be performed in such state.

     15.  No Third Party Rights.  Except as specifically provided in this
          ---------------------
Agreement, this Agreement is not intended and may not be construed to create any
rights (including third party beneficiary rights) in any parties other than
Employee and the Company, and their respective successors and permitted
assignees.

     16.  Headings, Gender, etc.  The headings used in this Agreement have been
          ----------------------
inserted for convenience and do not constitute manner to be construed or
interested in connection with this Agreement.  Unless the context of this
Agreement otherwise requires, (a) words of any gender will be deemed to include
each other gender, (b) words using the singular or plural number also will
include the plural or singular number, respectively, (c) the terms "hereof,"
"herein", "hereby," hereunder," "hereto," and derivative or similar words will
refer to this entire Agreement, (d) the terms "Article" or "Section" will refer
to the specified Article or Section of this Agreement, and (e) the conjunction
"or" will denote any one or more, or any combination or all, of the specified
items or matters involved in the applicable list.

     17.  Waiver and Remedies.  Any term or condition of this Agreement may be
          -------------------
waived at any time by the party that is entitled to the benefit thereof.  Any
such waiver will be in writing and will be executed by such party.  A waiver on
one occasion will not be deemed to be a waiver of the same or any other breach
on a future occasion.  All

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remedies, either under this Agreement, or by law or otherwise afforded, will be
cumulative and not alternative.

     18.  Invalid Provisions.  Subject to the provisions of Section 10(d) above,
          ------------------                                -------------
if any provision of this Agreement is held to be illegal, invalid, or
unenforceable under any present or future law, and if the rights or obligations
of any party hereto under this Agreement will not be materially and adversely
affective thereby, (a) such provision will be fully severable, (b) this
Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of the Agreement will remain in full force and effect and will not be
affected by the illegal, invalid, or unenforceable provision or by its severance
herefrom, and (d) in lieu of such illegal, invalid, or unenforceable provision,
there will be added automatically as a part of this Agreement a legal, valid,
and enforceable provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible.

     19.  Counterparts.  This Agreement may be executed simultaneously in one or
          ------------
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.


          IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement as of the day and year first above written.


COMPANY:                      HIGHLANDS INSURANCE GROUP, INC.



                         By:  __________________________________________
                              Stephen J. Greenberg
                              Vice President


EMPLOYEE:                     __________________________________________
                              Willis T. King, Jr.

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