California regulators say Tesla’s side hustle in the insurance business has gone from bad to worse. And they’re ready to bring the hammer down.

The California Department of Insurance announced on October 3 that it launched enforcement actions against Tesla Insurance Services, Tesla Insurance Company, and their partner State National Insurance Company, citing systemic failures that have left drivers stranded with unpaid claims, long delays, and little recourse.

The state’s watchdog described the situation as an escalating pattern of misconduct that’s only gotten worse despite repeated warnings.

Since Tesla entered the insurance market in 2022, complaints have surged, 

In 2025 alone, the company racked up more complaints, “justified” complaints, and violations than in the previous three years combined.

Regulators allege the companies routinely violated long-standing claims handling laws by dragging their feet on payments, unreasonably denying valid claims, and failing to even investigate some accidents thoroughly.

Drivers reported long delays at every stage of the process, unexpected out-of-pocket costs, and mounting stress while waiting for answers.

In its release, the department also said Tesla failed to inform customers of their right to appeal denied claims. That’s a basic consumer protection in California designed to keep insurers accountable.

Officials said Tesla and State National had been warned “numerous” times about the mounting harm to policyholders

Most of whom are Tesla EV drivers who purchased policies through the automaker’s in-house service.

At various points, the companies promised to improve. Instead, complaints and violations continued to climb, which the state says shows they prioritized profits over people.

If Tesla fails to resolve the issues, the companies could face hearings before an administrative law judge

The judge would determine whether they should even be allowed to continue selling insurance in California. These companies also risk significant fines, up to $5,000 per violation or $10,000 if regulators determine the violations were “willful.”