By Jonathan Stempel
(Reuters) - Two insurance units of Warren Buffett's Berkshire Hathaway Inc (N:BRKa) have agreed to lower their rates and provide more disclosures to settle claims that they overcharged small business owners in California for workers' compensation coverage.
The settlement announced by California's Department of Insurance on Thursday resolves charges that Applied Underwriters Inc and California Insurance Co steered prospective customers to unapproved or unexpectedly costly policies, using "illegal side agreements" that exposed policyholders to greater risks.
Jones had last June halted the Berkshire units' sale of unapproved "EquityComp" policies after finding that one policy subjected Shasta Linen Supply Inc, a Sacramento employer of 63 people, to hundreds of thousands of dollars of extra costs.
The Berkshire units had agreed three months later to stop selling unapproved EquityComp policies in California. Vermont and Wisconsin regulators enacted similar bans in those states.
"This is a significant victory in protecting California businesses from sophisticated bait and switch marketing tactics," California Insurance Commissioner Dave Jones said in a statement.
"We have gone to the limit of our authority over workers' compensation insurance products in winning concessions that eliminate oppressive contract terms," he added.
Applied Underwriters and California Insurance had no immediate comment.
Workers' compensation insurance typically covers lost wages and medical costs for employees injured on the job.
The case put a spotlight on lesser-known parts of Omaha, Nebraska-based Berkshire's insurance operations, which also include the Geico car insurer, the General Re reinsurer and a business that protects against large and unusual risks.
Berkshire has more than 90 operating units, but insurance still generates about one-fourth of its profit.