As a former coalfields physician, Governor Henry D. Hatfield recognized a need for a program to provide financial assistance to injured workers. He supported legislation to create a workers' compensation program modeled after one of the world's first such programs, which provided payments to injured workers in Germany's Ruhr Valley. West Virginia legislators approved the workers' compensation program during the 1913 legislative session. Hatfield regarded workers' compensation as the crowning achievement of his administration.

Workers' compensation (then called workmen's compensation) went into effect in October 1913. In the case of a fatal accident, it paid the funeral expenses of the deceased and a stipend for widows and children. In the case of partial disability, the employee received half his salary (between $4 and $8 each week). Income for the program came from a premium paid by the state's employers.

Workers' compensation provided legal protections to West Virginia's employers. So long as they paid their premiums, they could not be sued by workers who were injured on the job, no matter who was at fault in the accident. This changed, however, with the Mandolidis case. The Supreme Court of Appeals’ 1978 landmark decision expanded a worker's right to sue an employer for damages if there was evidence of "deliberate intent to produce such injury or death." In 1983 and again in 2005, the legislature passed measures that softened the impact of the Mandolidis decision on employers.

From the beginning, workers' compensation suffered from financial problems. The first financial statement showed a $290,000 deficit; it took four years for the fund to erase that deficit. Over the years, the system continued to struggle financially, and attempts to repair it proved divisive for business and labor interests. Critics claimed workers were taking advantage of the system, while others asserted that employers were not paying their fair share. Some observers blamed the system's problems on hazardous workplaces, political meddling, poor management, or judicial decisions that favored workers.

In 1995, the legislature tightened the eligibility rules, which angered labor groups. Four years later, the legislature revised the law again when it appeared that the deficit was shrinking faster than expected. In 2003, the legislature again approved reform measures, but the financial troubles continued. The Worker's Compensation Fund faced a deficit of $3 billion and was near bankruptcy by the time lawmakers approved legislation privatizing the system.

The 2005 legislation led to the creation of a private mutual insurance company, which would be owned by policyholders and would be the sole provider of worker's compensation coverage in West Virginia for two years. BrickStreet Mutual Insurance Company began operating on January 1, 2006. Greg Burton, executive director of the Workers' Compensation Commission, became president of the new company. As of 2012, the state still has a deficit in its workers' compensation fund, but the shortfall continues to shrink.