The Imaginary Line that Separates Workers Compensation Classification Codes

What do boundaries and borders between states and most countries have in common with workers compensation codes? If you answered an imaginary line you’d be correct! Codes are about the identification, separation and categorizing of work processes found in a business. You won’t find fences, guards or alarms separating class codes. But what you will find is different interpretations from different people! And that can be a problem.

Insurance agents, workers compensation underwriters, employers and insurance company management will all have an opinion as to what class codes should be used on a policy. So you should ask, who’s right? And the answer we always hear to that question is, well that depends!

Correctly classifying a workers comp policy is not always that complicated. When you’re dealing with a shoe store, there’s a shoe store class; when dealing with a drug store, there’s a drug store class. But the problem comes when the operations being performed by the employers workers cross classification descriptions. That’s the imaginary line. What about the employee who works as a carpenter and also sells jobs? Or the employee who spends part of her time operating excavation equipment and the other part of her time welding?

Believe it or not, there are rules that dictate how these situations are to be handled. For example the carpenter that also sells jobs unfortunately goes into the carpentry class because a rule states that you cannot split an employee between a governing code and a standard exception code like outside sales. But wait! There’s an exception to this code for owner/operator employers in the State of Missouri. In Missouri you are allowed to place an included owner into the governing code (if they perform duties under that description) and split 10% of their rating payroll into either 8810, clerical or 8742 sales depending on what other duties they perform. But you can’t do that for a regular Missouri employee. Only the owner.

Who’s in charge of these rules? That function should fall into the lap of the ratng bureau or advisory organization for your specific state. Ok, so rules are rules right? Hold on there!Let’s complicate that just a little. Rating bureaus are supposed to be the authority when it comes to how class codes are applied. But that’s not really true right? After all, rating bureaus, like NCCI, are usually contracted by the state in question to provide services for their state. So it’s the state that hires the rating bureau, who, by contract with the rating bureau, agrees to use the class descriptions published that bureau. Then doesn’t it make sense that the State in question will have the final say?

Usually within any given state you will find some mechanism that a disgruntled employer faced with what they believe to be an improper classification of their business can use to find justice! But that’s often not true. Why? It’s complicated! And the answers are usually found somewhere in the relationships between the rating bureau, the state bureaucracy and the insurance carriers.

This is what makes correct classifications so difficult. And this is where those individual interpretations that I mentioned above come into play. We were recently contacted by an insurance agent who submitted a risk to a stand alone workers compensation insurance company. The risk is a construction company and the insurance company underwriter insisted on classifying the owner of the business into 5645, residential carpentry, when he had nothing to do with carpentry or direct supervision of anyone at the job site. His duties were that of sales, bidding jobs, working with designers and architects and paying the bills. His only trips to the job site were to take the new owners out and show them the progress and to review any changes they wanted to the project. Certainly no exposure to the carpentry class of 5645! As a matter of fact, NCCI, in rule Part 1, rule 2, E- 1 a clearly indicates that “Executive Officers must be assigned to the classification that applies to the principal operations in which the Executive Officer is engaged.” And in this case is not 5645, carpentry! But the underwriter incorrectly insisted on using that class.

The remedy? The employer asked for an inspection by NCCI who correctly identified the class to be used as 8742, sales. A blow to the underwriters poor interpretation of the work operations and rules. And since this was in Missouri and the insurance company lost, the insurance company had to pay for the inspection.

But what happens when an insurance company digs their heels in and will not budge? Who makes them change a decision? I’d like to say the state governing authority but I’ve seen too many times where that doesn’t happen. Unfortunately the final say on some of these cases is that of the court.

So, be careful with classification codes! If you’re an insurance agent keep your eye on the imaginary line and watch out changing your client from one insurance company to another. You may just find out that the new company will apply an interpretation of the codes that you didn’t expect and find out that you’ve put your client in a difficult position!

Topic Menu: Workers Compensation Codes and Classifications


Hope this helps you out!