Hustler Words – Tesla’s ambitious foray into the insurance market is facing severe headwinds as the California Department of Insurance (CDI) has launched an enforcement action against the electric vehicle giant’s insurance arm and its partner, State National Insurance Company. The regulator alleges a pattern of "willful unfair claims settlement practices," including significant delays and unwarranted denials of claims, causing financial strain and emotional distress to policyholders.
The CDI’s filings paint a concerning picture, revealing that these issues were initially brought to Tesla’s attention in 2022. However, instead of improvement, the situation has reportedly deteriorated, with 2025 already exceeding the complaint volume and violation count of the previous three years combined.
Tesla and State National now face potential penalties of up to $5,000 for each "unlawful, unfair, or deceptive act" and a steeper $10,000 for each "willful" act. The companies have a 15-day window to respond to the allegations.
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This enforcement action could have broader legal ramifications for Tesla, especially considering the existing proposed class-action lawsuit alleging intentional delays and minimized claim payouts. The CDI’s findings further suggest potential third-party liability exposure for the company.
Tesla launched its in-house insurance product in 2019, promising lower premiums and expedited service. However, the rollout was plagued with technical difficulties and unexpectedly high quotes. Despite these initial setbacks, Elon Musk touted the venture as a "revolutionary" product.
However, by 2022, the CDI began observing a "marked uptick in claims-related consumer complaints" against Tesla, prompting meetings with the company and State National. The regulator discovered a prolonged vacancy in the "Head of Claims" position and accused the companies of failing to report claims-handling problems.
Subsequently, Tesla and State National were placed under a probationary period, with the CDI monitoring their efforts to address the violations. The companies acknowledged underestimating the claims volume and staffing requirements, pledging to increase hiring.
While Tesla eventually filled the Head of Claims position in April 2023 and reported improvements in claims handling and complaint resolution, a later investigation by Reuters revealed a less optimistic reality.
By 2024, the CDI also noticed a "significant increase" in consumer complaints and legal violations. The number of complaints surged from 83 in 2022 to 829 in 2024, with 775 cases involving violations of the state’s insurance code.
The situation has continued to worsen, with 1,481 complaints and 1,969 insurance code violations recorded through September 22 of this year. Since 2022, Tesla has accumulated nearly 3,000 violations of state insurance law, primarily related to failing to respond to customers within the mandated 15-day timeframe. The CDI also identified 166 violations involving a failure to conduct a "thorough, fair, and objective investigation" into claims.
The CDI stated that it repeatedly notified Tesla of its claims-mishandling issues and violations of law. While Tesla repeatedly committed to improvements, the number of justified complaints and violations continued to mount, demonstrating Tesla’s failure to correct its practices.
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