CA Is Taking Action Against Two Tesla Companies - Here's What That Means For Consumers

Tesla's vertically integrated (and expensive) insurance business is under intense scrutiny in the state where it all began. On October 3, 2025, the California Department of Insurance (CDI) filed formal Accusations and Orders to Show Cause against Tesla Insurance Services, Inc. (the insurance agent), Tesla Insurance Company (the Tesla-owned carrier), and State National Insurance Company (the underwriter for earlier policies). The state is accusing Tesla's insurance entities of routinely dragging out claims, failing to communicate with customers, denying coverage without investigation, and leaving drivers in the dark about their right to challenge a denial — all required under California's insurance code.

CDI warns that the volume and severity of complaints against Tesla's insurance arm have skyrocketed. In 2025 alone, Tesla racked up more violations and justified complaints than the previous three years put together. The accusation filing also revealed that Tesla Insurance lacked stable leadership during the most critical growth phase. From April 2023 to May 2025, the company cycled through three Heads of Claims and reportedly operated for months without a permanent claims director. The result was a growing backlog of unresolved claims, a surge in consumer frustration, and what CDI calls "non-compliant claims-handling practices."

CDI says that it flagged these violations to Tesla as early as 2022, but the company's handling practices didn't improve – and now, the state's patience appears to have run out. Regulators are threatening to suspend or revoke Tesla's ability to sell insurance in California, potentially forcing every Tesla customer in California to switch providers.

California has strict timelines for insurance claims. Every claim must be acknowledged within 15 days, updated every 30 days, and accepted or denied within 40 days after receiving proof of loss. According to the California Department of Insurance (CDI), Tesla consistently failed to meet these standards — not only for its own customers, but even for third parties filing claims after collisions with Tesla drivers. According to the state's October 3 Consumer Alert, Tesla has until October 18 to clean up its act and submit a formal response. 

If Tesla fails to meet that deadline, the legal and financial consequences could escalate quickly. Under California's Fair Claims Settlement Practices Regulations, each confirmed violation can cost $5,000, or $10,000 if found to be intentional. With nearly 2,000 violations recorded in 2025 alone, plus additional infractions stretching back to 2022, Tesla could be on the hook for tens of millions of dollars in potential penalties if regulators pursue the maximum allowed.

The greater threat, though, is operational. If Tesla fails to comply, the state can move to suspend or revoke the licenses that let it run both Tesla Insurance Services and Tesla Insurance Company, the in-house carrier it created after acquiring Balboa Insurance Company in 2022. That would effectively shut down Tesla's car insurance business in California, requiring customers to find new coverage. State law mandates notice — typically 10 days before cancellation or 30 days before non-renewal — but the disruption could still leave drivers scrambling, especially those with open claims or ongoing repairs.