Why Tesla's insurance arm is staring at legal action
What's the story
Tesla's insurance division is facing legal action from the California Department of Insurance (CDI) for allegedly denying or delaying customer claims. The regulator has accused Tesla and State National Insurance Company, its partner, of "willful unfair claims settlement practices." These include "egregious delays in responding to policyholder claims in all steps" and "unreasonable denials," according to CDI.
Ongoing issues
Situation worsened since initial complaints in 2022
The CDI first raised concerns over Tesla's insurance practices in 2022. However, the regulator claims that the situation has only worsened since then. "In 2025, the Tesla Companies have already had more complaints, more justified complaints, and committed more violations than in the three previous years combined," it said.
Legal repercussions
Potential fines and class action lawsuit implications
Tesla and State National could face fines of up to $5,000 for each "unlawful, unfair, or deceptive act" and up to $10,000 for every "willful" act. The companies have 15 days to respond to the enforcement action. This legal move could also have wider implications, as Tesla was hit with a proposed class action lawsuit in July over allegations of deliberately delaying and minimizing claim payouts.
Product launch
Tesla's insurance journey since launch
Tesla launched its in-house insurance product in 2019 with the promise of cheaper premiums and faster service. However, the launch was marred by website crashes and unexpectedly high quotes. Despite these initial hurdles, CEO Elon Musk had promised that it would be a "revolutionary" product. Just three years later, CDI noticed a major spike in claims-related consumer complaints against Tesla.
Regulatory oversight
CDI put Tesla on probation in late 2022
In December 2022, CDI began meeting with Tesla and State National over these complaints. The regulator found that Tesla's "Head of Claims" position had been vacant for months, and accused the companies of not reporting their claims-handling problems. Consequently, CDI put them on a sort of probationary period where it monitored their efforts to lower these violations for six months.
Increased complaints
Claims handling improved after new 'Head of Claims' hired
CDI found that Tesla had underestimated the volume of claims and staffing needed to handle them. By April 2023, a new Head of Claims was hired, and improvements were reported in claims handling and resolution of consumer complaints. However, an investigation by Reuters later that year revealed that the situation wasn't as rosy as it seemed.
Rising violations
Spike in consumer complaints and law violations
In 2024, CDI noticed a "significant increase" in consumer complaints against Tesla and law violations. The number of consumer complaints against Tesla jumped from 83 in 2022 to 829 in 2024. Of these cases, CDI found that Tesla had violated the state's insurance code in 775 instances. As of September this year, the regulator has received over double that number of complaints (1,481) and identified nearly three times as many insurance code violations (1,969).