(Adds comment from Applied Underwriters)
June 8 (Reuters) - Two insurance units of Warren Buffett's Berkshire Hathaway Inc 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.
California Insurance Commissioner Dave 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.
Vermont and Wisconsin regulators enacted bans of similar products in those states.
Thursday's settlement allows the resumption of EquityComp sales in California, provided that companies can absorb their risks, Jones said in a statement.
"This is a significant victory in protecting California businesses from sophisticated bait and switch marketing tactics," Jones said. "We have gone to the limit of our authority over workers' compensation insurance products in winning concessions that eliminate oppressive contract terms."
Jeff Silver, general counsel of Applied Underwriters, said in a statement the accord provides "certainty" that EquityComp is "fit for the marketplace. We are pleased to now resume selling this product in California."
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. (Reporting by Jonathan Stempel in New York; Editing by Tom Brown and Phil Berlowitz)