Workers Comp Audit Dispute: Gilley Construction and the Contract That Wins

When a carrier audits your workers' comp policy and hands you a bill for $40,000 more than you expected, the instinct is to call and complain about the rate. That instinct loses. A Kentucky appellate decision from May 2025 shows what actually wins: the contract, the classification language, and the payroll records.

In Travelers Indemnity Co. v. Gilley Construction, the Kentucky Court of Appeals reversed a summary judgment that had favored the insurer on an assigned-risk premium dispute (Travelers Indemnity Co. v. Gilley Construction, Kentucky Court of Appeals, May 2025). The court found that the record contained genuine disputes over whether the classification codes applied to Gilley's payroll matched the actual work performed under the contracts. The carrier wanted to enforce its audit billing. The contractor had documentation that told a different story.

Why the classification drives the bill

Workers' comp premium is a function of payroll multiplied by a classification rate per $100 of payroll. The workers comp premium formula is simple arithmetic. The fight is never about the math. It is about whether the classification code assigned to your payroll is the right one.

NCCI (the National Council on Compensation Insurance) publishes classification codes in its Scopes Manual. Each code carries a rate that reflects the expected loss cost for that type of work. Code 5400 (carpentry) and Code 5102 (steel erection) can differ by several dollars per $100 of payroll depending on the state and year. When an audit reclassifies payroll from a lower-rated code to a higher-rated one, the bill moves fast.

The Gilley court recognized this. The dispute was not about whether Gilley owed premium. It was about whether the specific classification the carrier applied was supported by the evidence in the record.

The premium sensitivity table

Here is what a classification dispute looks like in dollars. Take $500,000 in payroll, a realistic figure for a mid-size Southeast contractor running a few crews. Apply a rate swing of 3 to 8 points per $100 of payroll, which is the range you see when an audit moves payroll from a standard construction code into a higher-risk code or an assigned-risk multiplier.

| Rate Swing per $100 | Premium Impact on $500K Payroll | |---|---| | $3.00 | $15,000 | | $5.00 | $25,000 | | $8.00 | $40,000 |

A 3-point swing produces $15,000 of unexpected premium. An 8-point swing produces $40,000. These are not hypothetical ranges. They reflect the actual spread between common construction classification rates in NCCI-administered states (NCCI Scopes Manual, 2025 edition). On a contractor running $2 million to $25 million in annual payroll, a single misclassified job can scale these figures by a multiple.

The problem compounds when the disputed classification feeds your experience modification rate. A classification error that inflates premium can also inflate the losses reported on your unit statistical report, which is the data NCCI uses to calculate your mod. One error, two impacts.

What documentation actually wins

The Gilley decision turned on evidence. The court reversed because the carrier could not conclusively tie its classification to the contractor's actual operations. That means the documentation that wins a dispute is the documentation that proves what work was actually performed.

In our reviews of Southeast contractor worksheets, the documentation that carries weight is specific. It is the subcontract that defines the scope of work for a given project. It is the payroll allocation showing which employees worked on which job and for how many hours. It is the job scope narrative that distinguishes framing from finishing, or excavation from site preparation. It is the NCCI Scopes Manual entry for the classification at issue, read alongside the contract language, showing the code's description does not match the work.

General complaints about rates being too high do not create a genuine dispute of material fact. Contracts and payroll records do.

Assigned risk is not a blank check

Assigned-risk pools exist for contractors who cannot secure coverage in the voluntary market. The rates are higher. The rules are the same. An assigned-risk carrier still has to apply the correct classification code to the correct payroll. The Gilley case confirms that even in the assigned-risk context, the carrier bears the burden of proving its classification fits the work.

That matters for Southeast contractors because assigned-risk placements are common in high-hazard trades. Roofing, steel erection, and heavy civil all generate assigned-risk placements when voluntary markets tighten. If your carrier applies a classification you did not see at binding, and the audit bill reflects that code, the dispute is not about whether you owe money. It is about whether the code is right.

What an audit would check

An audit checks whether the classification codes on your policy and audit worksheets match the work described in your contracts and job-cost records. It compares the payroll allocations your carrier used against your actual payroll registers and project assignments. It reviews the NCCI Scopes Manual descriptions for every code applied to your account and tests them against your documented scope of operations. If a code does not match, that is the dispute. Everything else is noise.

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