Tesla’s insurance arm accused of ‘egregious delays’ and ‘systemic failures’ by CA regulator

Tesla has been hit with an enforcement action by California’s Department of Insurance (CDI) for routinely denying or delaying customer claims despite years of warnings from the state regulator, according to a new pair of filings.

Tesla’s insurance arm, along with its partner State National Insurance Company, engaged in “willful unfair claims settlement practices” including “egregious delays in responding to policyholder claims in all steps” of the process and “unreasonable denials,” CDI wrote. This has allegedly caused “financial harm” and “distress to policyholders.”

CDI first approached Tesla about these issues in 2022, according to the filings, yet it claims things have only gotten worse. “In 2025, the Tesla Companies have already had more complaints, more justified complaints, and committed more violations than in the three previous years combined,” the regulator wrote.

Tesla and State National could face penalties up to $5,000 for each “unlawful, unfair, or deceptive act” and up to $10,000 for each “willful” act, according to the filings. The companies have 15 days to respond.

The enforcement action could have knock-on legal effects for Tesla. In July, the company was hit with a proposed class action lawsuit over allegations that the company purposely delayed and minimized claim payouts. CDI wrote Friday that Tesla’s actions may have created “potential third-party liability exposure.” Tesla and State National did not immediately respond to a request for comment.

Tesla launched its in-house insurance product in 2019. The idea was to offer cheaper premiums and faster service. But it got off to a rocky start. The website repeatedly crashed, and when it didn’t, it offered quotes that were far higher than owners expected. Still, Musk promised it would be a “revolutionary” product.

Just three years later, according to CDI’s filings, the regulator noticed a “marked uptick in claims-related consumer complaints” against Tesla. So in December 2022, CDI started meeting with Tesla and State National.

The regulator said it learned Tesla’s “Head of Claims” position had been vacant for months. It also accused the companies of not reporting the claims-handling problems.

As a result, CDI subjected Tesla and State National to a sort of probationary period: the regulator monitored the companies’ efforts to reduce these violations for six months. Tesla and State National “conceded” that they had underestimated the volume of claims and the staffing required to handle them, according to CDI, and promised to beef up hiring.

It took Tesla until April 2023 to hire a new Head of Claims. Through the rest of that year, Tesla and State National “reported improvements in the quality” of their claims handling and the “resolution of consumer complaints.”

Later that year, Reuters published an investigation into Tesla’s insurance arm that showed things weren’t so rosy.

CDI came to the same realization in 2024. The regulator noticed a “significant increase” in both consumer complaints against Tesla and “violations of the law,” according to the filings. CDI had received just 83 consumer complaints against Tesla in 2022, but in 2024, that number jumped to 829. In 775 of those cases, CDI found Tesla had violated the state’s insurance code.

Things have only gotten worse, according to CDI. Through September 22 of this year, the regulator has received 1,481 complaints against Tesla, and identified 1,969 insurance code violations.

In total, since 2022, CDI said Tesla has accumulated nearly 3,000 violations of state insurance law. The majority of those violations involve Tesla failing to respond to customers within the mandatory 15-day period. CDI said it identified 166 violations in which Tesla filed to conduct a “thorough, fair, and objective investigation” into a claim.

“CDI repeatedly notified [Tesla] of its claims-mishandling issues and violations of law,” the regulator wrote. “While [Tesla] repeatedly committed to improvements, the number of justified complaints and violations continued to mount, demonstrating [Telsa’s] failure to correct its practices.”