The California Department of Insurance ordered two subsidiaries of Berkshire Hathaway to cease and desist selling or renewing some of their workers’ compensation policies in California.

California Insurance Co. and Applied Underwriters were allegedly going around a California law that was designed to protect business owners from paying unexpected workers’ compensation costs.

California Insurance is owned by North America Casualty Co which is owned by Applied Underwriters, a subsidiary of Berkshire Hathaway. The two carriers allegedly sold policies that had a reinsurance participation agreement which, under California’s codes, constituted a collateral agreement and needed to be filed with the insurance commissioner, which they were not. Small business owners could get hit with unexpected expenses, like the owners of Shasta Linen who found out they had to pay hundreds of thousands of dollars more than they thought they should have when their policy expired. The premiums quoted to policy holders initially were well below the competition, but the policy holders were not always informed about the reinsurance participation until they got the bill. California’s Insurance Commissioner Dave Jones said that they were selling insurance without regulatory review and without filing their rates and terms, which could result in business owners getting taken advantage of. The product was sold as the EquityComp Program and some of the SolutionOne products, and if any brokers sell or renew these products now they could lose their license or have it suspended.

Applied Underwriters has received other cease and desist orders from Wisconsin and Vermont insurance regulation agencies, but they are planning to appeal the California order.