NEW YORK (CNNMoney.com) - Less than 30 hours after the state of West Virginia scrapped its state-run workers' compensation fund and handed the reins to privately owned BrickStreet Mutual Insurance Co., the newly formed company was faced with its first tragedy: the Sago Mine explosion.

The insurer hadn't even opened its doors for business yet.

Families of the miners killed in West Viriginia will be eligible for up to $5,000 in funeral benefits and payments of $569 a week.

And now with the tragic death and injury of 13 miners in West Virginia, BrickStreet bears the sole responsibility of providing grieving family members with compensation for their loss -- a job that formerly fell to a struggling state agency, the Worker's Compensation Commission.

In its new role, BrickStreet provides workers' compensation insurance for the mine's owner, International Coal Group (Research), whose stock sank 2.5 percent Thursday.

Until Jan. 1, West Virginia was one of the few states to operate a state-owned monopoly in workers' compensation insurance. But after years of financial struggle, the state legislature voted to privatize the industry and authorized the transition of the state-run agency to BrickStreet as of the new year.

The mutual company -- which is owned by the 42,000 employers in West Virginia -- will be the sole provider of workers' compensation policies to businesses that operate in the state until July 2008, when the market fully opens to other private companies. Businesses in the state are required by law to provide workers' compensation insurance.

"This is a very difficult beginning for the transition," said Robert Hartwig, chief economist at the Insurance Information Institute, an industry group. "But BrickStreet is fully capable of handling this type of event financially."

BrickStreet spokesman Andrew Wessels said the company had started meeting with representatives of International Coal -- which took full control of the Sago mining operation in November from Anker Coal Group Inc. -- before the outcome of the disaster was known.

"We will continue to work with them and when the time is appropriate, we'll go meet with the families individually, possibly at a neutral location," he said. "We'll sit down with them and explain the benefits and help them fill out the necessary paperwork."

He said family members of the deceased miners will be eligible to receive up to $5,000 in funeral benefits. Eligible dependents -- such as the spouses or children of the miners -- will receive a death benefit equaling two-thirds of the average weekly wage of the worker for the 12 months preceding the accident.

At the most, eligible beneficiaries will receive $568.78 a week until dependent children reach the age of 18 or, in the case of college students, age 25.

Spouses can keep receiving benefits until the year the worker would have turned 70. Workers' comp benefits aren't subject to federal or state income tax, Wessels added.

A representative from International Coal couldn't immediately be reached for comment.

But observers don't expect the victims to settle for workers' compensation checks.

"The universal view is that what's being offered is not adequate, complete compensation for the loss of life," said Bill Frame, a partner at West Virginia-based litigation firm Wilson Frame Benninger Farrell & Metheney. "We don't know yet what caused this explosion but there is a history of violations at this mine."

Federal reports show the number of safety violations at the Sago Mine rose rapidly over the past two years, and in 2005 inspectors called 96 of them "serious and substantial." There were reports of 11 roof collapses in the past six months alone. (For more on that story, click here.)

And unlike many states, West Virginia doesn't prohibit individuals who collect workers' comp benefits from suing the company. Investigators are already inspecting the mines for clues as to the cause of the explosion.

Frame said that while it's still early in the investigation, if there is evidence that the "employer has acted with deliberate intent or reckless disregard" for safety, there would be significant cause for legal action. That would leave International Coal liable for a "potentially large payout," Frame added.

And International Coal may also face a spike in the premiums it pays for workers' comp coverage, said Andy Barile, a consultant specializing in insurance issues. He added that other coal companies may also face higher premiums given the fear of additional risks from mining, one of the nation's most hazardous jobs.

BrickStreet's Wessels said if a company has a proven history of violations and significant claims, that will certainly impact the rates it pays for workers' comp policies.

It was not immediately clear which insurers provide liability or other business coverage for International Coal.

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