Here is the item again:
When Kate saw the gray worm on the dissection
tray. (A)
She folded her arms
(B) and refused
to pick up the scalpel
(C) even though
she would earn a zero in lab.
You correctly realized that the period after tray created a fragment. When Kate saw the gray worm on the dissection tray is a subordinate clause, which cannot stand alone as a complete sentence.
To fix this fragment, you chose to do this:
When Kate saw the gray worm on the dissection tray,
she folded her arms and refused to pick up the scalpel even though
she would earn a zero in lab.
You have correctly employed Punctuation Rule 2:
Subordinate Clause + , + Main Clause.
Continue making that beautiful music!