SEPARATION AGREEMENT

Exhibit 10.1

SEPARATION AGREEMENT

This SEPARATION AGREEMENT (the “Agreement”) is made and entered into on the 25th day of June 2008, by and between ERIE INDEMNITY COMPANY , a Pennsylvania corporation with its principal place of business in Erie, Pennsylvania (the “Company”), and MICHAEL J. KRAHE , residing at 6324 Stonebrook Drive, Fairview, Pennsylvania, 16415 (the “Executive”).

RECITALS:

WHEREAS, the Company and the Executive are parties to an Amended and Restated Employment Agreement made effective as of December 12, 2005 (the “Employment Agreement”) and an Amendment and Payment Designation Agreement made effective as of December 31, 2007 (the “Payment Designation Agreement”); and

WHEREAS, the Executive hereby tenders his resignation as an officer and employee of the Company and as an officer and director of each of its subsidiaries and related companies, and the Company and each of its subsidiaries and related companies hereby accept such resignations effective as of the dates set forth in Section 2 of this Agreement; and

WHEREAS, the Company and the Executive desire to memorialize the terms of the Executive’s termination of employment in this Agreement and completely resolve all matters arising out of the Executive’s employment with the Company or the termination of that employment, as well as all matters arising out of or related to the Employment Agreement and the Payment Designation Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

1.  Effective Date . This Agreement shall not become effective or enforceable until the seven (7) day revocation period described in Section 5(f) of this Agreement has expired (the “Effective Date”) and, except for the payment listed in Section 3(d) (A) below, none of the payments or benefits described in this Agreement shall be provided to the Executive until after the revocation period has expired without the Executive having revoked this Agreement.

2.  Termination of the Employment Agreement and the Payment Designation Agreement; Resignation as an Officer and Termination of Employment . The Executive and the Company hereby mutually terminate, revoke and rescind the Employment Agreement and the Payment Designation Agreement and all rights and obligations either party has or may be entitled to under the Employment Agreement and the Payment Designation Agreement, in accordance with Section 5(h) of the Employment Agreement. The Executive and the Company agree further that the Executive’s status as an officer of the Company and as an officer and director of each of the Company’s subsidiaries and related companies terminates as of the date of this Agreement and that the Executive’s status as an employee of the Company will terminate effective as of the close of business on July 17, 2008.

3.  Consideration .

a. In consideration of the execution and performance of this Agreement by the Executive, and subject to the remaining provisions of this Section 3, the Executive will receive from the Company the following severance payments and benefits, which include sums of money and benefits to which the Executive would not otherwise be entitled if the Company and the Executive did not mutually agree to the termination of his Employment Agreement and Payment Designation Agreement:

i. The Company shall pay to the Executive, in a lump sum cash payment on July 31, 2008, the sum of One Million Two Hundred and Ninety-Six Thousand Dollars ($1,296,000), and an additional amount, in a lump sum cash payment on February 16, 2009, of Ninety-Seven Thousand and Five Hundred Dollars ($97,500).

ii. The Company shall pay to the Executive, in a lump sum cash payment on February 2, 2009 , his Accrued SERP Benefit and Additional SERP Benefits (as such terms are defined in Section 8(a)(5) of the Employment Agreement and used in subparagraph 2(a) of the Payment Designation Agreement) as required under subparagraph 2(a) of the Payment Designation Agreement in settlement of the Executive’s Accrued SERP Benefit and Additional SERP Benefits and any other benefit under or related to the Supplemental Executive Retirement Plan for Certain Members of the Erie Insurance Group Retirement Plan for Employees (“SERP”) in which Executive may have had an expectancy. For the purpose of computing this payment, the Executive’s last date of service shall be July 17, 2008. This lump sum payment shall include credit for three (3) additional years of service as provided in Section 6(a)(4) of the Employment Agreement. The Company will pay the SERP benefits required under this Section 3(a)(ii) by (A) delivering a check to the Executive for the gross amount of his Accrued SERP Benefit and Additional SERP Benefit, (B) remitting to the appropriate taxing authorities the tax payments required on those payments pursuant to Section 3(a)(iii) below, and (C) delivering to the Executive a check for the three (3) additional years of service referred to in the preceding sentence, less all required tax withholdings.

iii. The Company shall pay to the appropriate taxing authorities on the Executive’s behalf a Tax Gross-up with respect to payment of Executive’s SERP Benefits described in paragraph (ii); provided, however, the portion of the payment of that SERP Benefit that is attributable to the three (3) additional years of credited service referred to in the last sentence of paragraph (ii) shall not be eligible for a Tax Gross-up. As used throughout this Agreement, the “Tax Gross-up” with respect to a particular payment or benefit means (A) the taxes identified below that are payable by the Executive by reason of such payment or benefit, computed by applying the highest applicable marginal rate with respect to each such tax and (B) any such taxes incurred and due and owing with respect to the amounts paid in (A) above:

As used in this Agreement, the “appropriate taxing authorities” means the United States Treasury, the Commonwealth of Pennsylvania Department of Revenue and the City of Erie, Pennsylvania, as applicable. Any Tax Gross-up payable under this Agreement shall be paid during the year in which the related payment or benefit is paid.

iv. The Company shall pay to the Executive, in a lump sum cash payment on February 16, 2009, an amount equal to the Executive’s account balance under the Deferred Compensation Plan of Erie Indemnity Company (the “Deferred Compensation Plan”) as of December 31, 2004, plus earnings on that portion of the Executive’s account through the date of payment, computed in accordance with the terms of the Deferred Compensation Plan.

The Company shall pay to the Executive, in a lump sum cash payment on February 16, 2009, an amount equal to the Executive’s account under the Deferred Compensation Plan attributable to accruals on and after January 1, 2005, and earnings on that portion of the Executive’s account through the date of payment, computed in accordance with the terms of the Deferred Compensation Plan.

v. The Company shall issue 625 shares of the Company’s Class A Common Stock (less applicable deductions) to the Executive in January 2009, which shares represent restricted shares awarded to Executive under the Company’s 1997 Long Term Incentive Plan.

vi. With respect to the Company’s 2004 Long Term Incentive Plan (“2004 LTIP”), (A) the performance period with respect to awards made to the Executive for the 2006-2008, 2007-2009 and 2008-2010 performance periods shall all be treated as ending on December 31, 2008; (B) the Company shall measure Company performance for each such performance period against the applicable performance standards and goals and shall determine the number of the restricted performance shares earned by the Executive for the performance period, based on such Company performance (the “earned award”); and (C) the Company shall issue to the Executive shares of the Company’s Class A Common Stock representing: (1) for the 2006-2008 performance period, 100 percent of the earned award, (2) for the 2007-2009 performance period, 2/3 of the earned award, and (3) for the 2008-2010 performance period 1/3 of the earned award (less, in each case, applicable deductions). The Company shall issue such shares in 2009 at the time awards for the 2006-2008 performance period are paid to other 2004 LTIP participants. The Company’s determination of the number of shares to be issued shall be in accordance with the terms of the 2004 LTIP and consistent with the Company’s past practices, and shall be final and binding on all interested parties.

vii. For each of the calendar years 2009, 2010 and 2011, the Company shall reimburse the Executive for the annual premiums due and paid during such years ( i.e. , in 2009 for the 2009-2010 policy year, in 2010 for the 2010-2011 policy year, and in 2011 for the 2011-2012 policy year) on a Northwestern Mutual Life Insurance Company policy on the Executive’s life (No. 16-352-040) within thirty (30) days after receipt of reasonable substantiating documentation from the Executive, but in any event not later than the end of the calendar year following the year in which such expense was incurred. In addition, in each such year the Company shall pay to the appropriate taxing authorities on the Executive’s behalf an amount equal to the Tax Gross-up (as defined in clause (iii)) with respect to such premium payments. If the Executive should die or cancel or surrender such policy during the three (3) year period, no further payments by the Company shall be required. The Company agrees to use its best efforts to have any restrictive endorsements on these policies removed not later than December 31, 2008.

viii. The Company shall continue or cause to be continued the coverage of the Executive (and the Executive’s previously covered dependents, if any) under the following employee benefit plans of the Company, upon substantially the same terms and conditions (including the required employee contribution, if any) as apply to comparably situated executives, for a period of three (3) years beginning on July 18, 2008:

With respect to all health plan coverages that are not provided under an insured plan, the Executive shall duly elect and pay for COBRA continuation coverage. The Company’s obligation with respect to all health plan coverages that are not provided under an insured plan is conditioned on the Executive’s duly electing, and then paying for, COBRA coverage throughout the available COBRA continuation coverage period.

If the continuation of any coverage identified in clauses (I) through (V) above is not reasonably available pursuant to the applicable insurance policy or plan and, in the case of any health plan coverage not provided under an insured plan, after the end of the available COBRA continuation period:

(A) The parties will cooperate and use their best efforts to obtain an individual policy or policies that provides the Executive (and his previously covered dependents, if any) substantially equivalent coverage, and the Company will pay, for a period of three (3) years beginning July 18, 2008, the premiums on any such individual policy, to the extent in excess of the required employee contribution paid by the Executive prior to July 18, 2008.

(B) If the continuation of any such coverage is not available pursuant to the applicable insurance policy or plan, and an individual policy cannot be obtained despite the parties’ cooperative best efforts:

(I) With respect to group health plan coverage, the Company will reimburse the Executive for any medical expense he (and his previously covered dependents, if any) incur during the period after COBRA coverage has terminated and before July 18, 2011, provided that such expense would have been reimbursed by the applicable Company plan. The Company shall pay such reimbursement promptly upon receipt of reasonable documentation thereof from the Executive, but in any event not later than the end of the calendar year following the year in which the expense was incurred.

(II) With respect to any other such coverage, the Company shall, during the three (3) year period beginning on July 18, 2008, pay or reimburse the Executive (and his previously covered dependents, if any) the same amount that would have been paid by the applicable plan or policy. The Company shall make such payment upon receipt of reasonable substantiating documentation from the Executive, but in any event not later than the end of the calendar year following the year in which any reimbursable expense was incurred.

b. In the event of the Executive’s death before payment of the benefits described in Section 3(a)(i), the Company shall pay the benefit at the scheduled time to the Executive’s surviving spouse.

In the event of the Executive’s death before payment of a benefit described in any of the paragraphs (ii) through (vi) of Section 3(a), the Company shall pay the benefit at the scheduled time to the beneficiary or beneficiaries designated by the Executive from time-to-time in accordance with the terms of the plan or arrangement to which the benefit relates; provided, however, that if the Executive has not designated a beneficiary in accordance with the terms of the applicable plan or arrangement, or if no designated beneficiary with respect to the plan or arrangement survives the Executive, the Company shall pay the benefit to the executor or administrator of the Executive’s estate.

c. All payments under this Section 3, whether or not in cash, shall be subject to applicable deductions. For the purposes of this Agreement, “applicable deductions” shall include, but shall not be limited to, any federal, state, or local taxes determined by the Company to be required to be withheld from amounts paid to the Executive pursuant to this Agreement or otherwise due from the Company, and any other amounts that the Company may be legally required to deduct from his earnings.

d. Except as provided in this Agreement, the Executive agrees that he is not entitled to any other compensation (including, but not limited to, salary or bonuses), perquisites, or benefits of any kind or description from the Company, or from or under any employee benefit plan or fringe benefit plan sponsored by the Company or under the Employment Agreement or Payment Designation Agreement, other than as described above and other than (A) his regular salary through July 17, 2008, (B) payment for his accrued unpaid vacation time (which shall not be less than 58 hours), which will be computed in accordance with the Company’s past practices for departing employees and paid as soon as administratively practical but not later than July 31, 2008, (C) his accrued benefits under the Erie Insurance Group Retirement Plan for Employees, and (D) his accrued benefits under the Erie Insurance Group Employee Savings Plan. The consideration paid by the Company to the Executive pursuant to this Agreement shall be in compromise, settlement and full satisfaction of any and all Claims, as defined in Section 4 of this Agreement, that the Executive has, or may have, against the Company or other Releasees, as defined in Section 4 of this Agreement, arising out of the Executive’s employment with the Company or its affiliates, the termination of such employment and any and all matters related to the Executive’s employment and termination, or to his Employment Agreement or Payment Designation Agreement.

4.  Executive’s Waiver and Release . The Executive, for himself, his heirs, successors and assigns and in consideration of the payments to be made by or on behalf of the Company pursuant to Section 3 of this Agreement, does hereby forever discharge and release the Company, and its corporate parents, subsidiaries, affiliated companies, companies with common management, ownership or control, successors, assigns, insurers and reinsurers, attorneys, and franchisees, and al