This week, Tesla shareholders approved an unprecedented pay package for Elon Musk, potentially setting him up to become the world’s first trillionaire.
If Tesla reaches certain performance targets, Musk will receive stock worth $1 trillion. This comes after the company’s recent struggles with lower sales and reduced market share, partly because Musk was focused on his work with the former Department of Government Efficiency (DOGE).
Around 75% of shareholders apparently believe he will be able to turn things around, even though in Europe, Tesla car sales plunged again last month, including a 50% collapse in Germany, according to an Associated Press report.
Musk and Tesla now face a new challenge.
The company’s insurance division is the subject of a class-action lawsuit alleging systematic underpayment of auto insurance claims and violations of state consumer-protection laws.
Tesla accused of underpayment and coverage confusion
Filed Nov. 5 in Arizona federal court, the lawsuit claims Tesla shortchanged uninsured and underinsured drivers.
Plaintiffs allege Tesla’s insurance denied legitimate claims or reduced payouts by not allowing policy “stacking,” a practice standard in Arizona.
The suit seeks class-action status and claims Tesla’s practices violated Arizona consumer-protection laws.
“Tesla Insurance’s refusal to honor legally required stacking of policies has left consumers under-compensated for their losses,” the complaint says. “These denials were not accidental — they were the result of company policy designed to reduce payout costs.”
Tesla General Insurance has not publicly commented on the case, and Tesla did not respond to TheStreet’s requests for comment.
According to the lawsuit, the company’s policies and claims-handling procedures “misrepresented available coverage” and “failed to conduct fair investigations of claims,” practices the plaintiffs allege were meant to minimize liability and protect profits.
Insurance is a growing side business for Elon Musk and Tesla
Tesla launched its in-house insurance arm in 2019, promoting it as a cheaper, tech-driven alternative to traditional insurers. The company uses telematics — real-time driving data gathered from its vehicles — to calculate rates, a system it says rewards safe driving.
The business has since expanded into at least a dozen states, including California, Texas, Arizona, and Illinois. Executives have described insurance as a long-term growth opportunity that could complement vehicle sales and recurring software revenue.
The Arizona lawsuit adds to growing scrutiny around Tesla’s insurance practices, especially as the company positions itself as both manufacturer and insurer — a dual role that consumer advocates say can create conflicts of interest.
Tesla has faced other class-action suits
This isn’t the first time Tesla’s insurance business has drawn legal or regulatory attention. In July 2025, a separate consumer-class action was filed in California alleging the company’s insurance arm delayed or denied repair claims, forcing customers to pay out of pocket or wait weeks for reimbursements.
That case, Carlos Magana v. Tesla Insurance Co., is still pending in Los Angeles Superior Court. It alleges violations of California’s unfair competition and false advertising laws.
Tesla’s entry into the insurance space followed a familiar pattern for tech-driven insurers, Capgemini Global Industry Leader for Insurance Adam Denninger told Insurance Business Magazine.
“What you’ve seen for a long time is that a lot of technology companies coming into the industry on the distribution side – offering new agent experiences, new mechanisms of gathering data, even occasionally doing the underwriting piece as well – all have had a similar experience. They lost a lot of money.”
Legal experts say Tesla will put up a fight
Policy researchers say the Arizona complaint could test how far states can go in enforcing consumer-protection standards against vertically integrated insurers like Tesla.
Legal experts expect Tesla to argue that its policy terms clearly disclosed coverage limits and that stacking was not contractually available under its Arizona product. However, plaintiffs’ attorneys argue that the company cannot contract around consumer-protection rules that are enshrined in state law.
More on personal finance:
- Dave Ramsey warns Americans on critical Medicare mistake to avoid
- Finance author sends strong message on housing costs
- Scott Galloway explains his views on retirement, Social Security
Auto-insurance litigation rarely makes national headlines, but this one touches a company synonymous with innovation — and controversy. Tesla’s expansion into financial services was intended to reduce costs and create a seamless experience for customers.
If the plaintiffs prevail, the case could lead to broader oversight of automakers offering in-house coverage and could even prompt new state-level rules on data-driven insurance models.
What the class action lawsuit means for Tesla investors
For investors, Tesla Insurance represents a small but growing segment of Tesla’s business. Analysts estimate that insurance revenue, while still less than 1% of total sales, could eventually add recurring income as vehicle margins tighten.
A class-action settlement or regulatory penalties, however, could delay expansion into new states or invite greater scrutiny from insurance commissioners nationwide.
Related: Bank of America sounds alarm on Tesla’s problem
Tesla’s shares were flat in Nov. 6 trading following the Reuters report on the lawsuit.
The plaintiffs are seeking restitution, damages, and an injunction ordering Tesla to revise its claims-handling policies. The court has yet to set a preliminary hearing date.
Consumer-protection attorneys say the outcome could influence how states treat tech-enabled insurers — not just Tesla’s, but also newer entrants from other automakers and fintech firms.
