Tesla hit with enforcement action by California regulator

Tesla has been hit with an enforcement action by the California Department of Insurance (CDI) over claims of routinely delaying or denying claims. The enforcement action is coming after years of warnings from the state regulators, according to a new pair of filings.

According to its filing, the California regulator claims that Tesla’s insurance arm, along with its partner State National Insurance Company, engaged in what it called “willful unfair claims settlement practices.” These included “egregious delays in responding to policyholder claims in all steps” of the process and “unreasonable denials,” the CDI said. The regulator claims that the attitude of the company has allegedly caused financial harm and distress to policyholders.

California Insurance regulator hits Tesla with enforcement notice

The California regulator claimed that it first approached Tesla about these issues in 2022, according to the filings. Yet, it claims that the company refused to heed its warnings, and things have gotten worse 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,” the regulator wrote.

Tesla and State National could face up to $5,000 in penalties each for “unlawful, unfair, or deceptive act.” The pair could also face up to $10,000 in penalties each for a “willful” act, according to the filings. The companies have been given 15 days to respond to the notice. The enforcement action is expected to have knock-on effects for Tesla. In July, the company was hit with a proposed class action lawsuit over allegations that it purposely delayed and minimized payouts.

The CDI, in its filing, wrote that the action undertaken by Tesla may have created a “potential third-party liability exposure.” Tesla created its in-house insurance product in 2019 with a mission to offer cheaper premiums and faster service. However, things got off to a rocky start as the website repeatedly crashed, and when it didn’t, it offered users quotes that far exceeded their expectations. Still, Musk promised users that the product would be revolutionary.

CDI says things have gotten worse

In the CDI filings, the regulator mentioned that it started noticing issues three years after the product launched. It said the website has a marked uptick in claims-related consumer complaints against Tesla. So, in December 2022, the regulator said it started meeting with Tesla and State National with a view to sorting the issue. The regulator claimed that it discovered that the company’s Head of Claims position had been vacant for months, accusing the company of not reporting the problems it had with handling claims.

As a result of these issues, the regulator subjected Tesla and State National to a probationary period where it monitored their combined efforts to reduce these violations for six months. Tesla and State National claimed that they had underestimated the volume of claims and the staffing required to handle them. According to the CDI, the companies promised that they were going to increase hiring to make up for the shortfall.

The regulator claimed that it wasn’t until 2023 that the firm eventually hired a new Head of Claims. Through the rest of the year, Tesla and State National reported several improvements in the quality of their claims handling and the resolution of customer issues. However, Reuters published an investigation into Tesla’s insurance arm that same year, showing that things weren’t that rosy. According to the filings, the CDI said it realized in 2024, with the regulator noticing a “significant increase” in both consumer complaints against the firm and “violations of the law.”

According to the CDI, things have now gotten worse. Through September 22 of this year, the regulator said it has received 1,481 complaints against Tesla, and identified about 1,969 insurance code violations. In total, the CDI claims that the firm has accumulated 3,000 violations of state insurance law, with most of these happening within the 15 days that the company was supposed to respond to customers.

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