By Jonathan Stempel

(Reuters) - California's insurance commissioner has ordered two Berkshire Hathaway Inc <BRKa.N> insurance units to stop selling some workers' compensation policies that he considers illegal.

Commissioner Dave Jones on Wednesday issued a "cease and desist order" preventing Berkshire's Applied Underwriters Inc and California Insurance Co units from selling or renewing the policies in question in California.

Jones had on June 20 found that the units evaded a state law meant to protect small businesses from unexpected workers' compensation costs, through the sale of a nontraditional policy whose terms and rates had not been reviewed by state officials.

Wednesday's order extends that ruling to all similar policies that the Berkshire insurers sell in California. A hearing on the matter is to be held within 30 days.

The case arose from the sale of a policy known as EquityComp to Shasta Linen Supply Inc of Sacramento, which Jones said subjected the family-owned employer of 63 people to hundreds of thousands of dollars of extra costs.

Spencer Kook, a lawyer for the insurers, in a Thursday email said California Insurance is "disappointed and surprised" by Jones' order, disagrees with the validity of the June 20 ruling, and intends to pursue all legal remedies in response to both.

Workers' compensation insurance typically covers lost wages and medical costs for employees injured on the job.

Berkshire has said EquityComp carries a profit-sharing component and is meant for medium-sized employers.

But the insurance commissioner said the policy can prove unexpectedly costly because of the higher risk of claims.

EquityComp generates 80 percent of California Insurance's policy premiums, Jones has said.

Berkshire Hathaway is run by Warren Buffett and based in Omaha, Nebraska.

(Reporting by Jonathan Stempel in New York; Editing by Cynthia Osterman and Diane Craft)