Yes, to the extent not prohibited by state law, plan provisions that deny benefits based on the source of an injury are permitted and, as such, benefits for the employee’s head injury may be denied.
A plan may not deny eligibility to individuals who engage in high-risk sports, such as bungee jumping, sky diving, horseback riding, and skiing. However, a plan may exclude coverage relating to injuries arising out of such activities under HIPAA's nondiscrimination regulations.
Note that source-of-injury clauses that deny benefits provided for treatment of injuries arising from acts of domestic violence or a medical condition would violate the nondiscrimination rules. Thus, for example, a plan provision that excludes coverage for self-inflicted injuries may violate HIPAA's rules if the injuries are the result of a medical condition (for example, depression). This rule applies in the case of an injury resulting from a medical condition, even if the condition is not diagnosed before the injury.
Source: IRS Reg. §54.9802-1(b)(1) and (2).