Alcohol, Drugs & Horseplay: Common Reasons Workers’ Compensation Insurance Denies Claims

Workers’ compensation (WC) is designed to be “no-fault”—yet every year, thousands of injured employees in the United States see their claims rejected.
From Austin, TX construction sites to Buffalo, NY warehouses, three fact patterns dominate denial letters:

1. The worker was allegedly under the influence of alcohol or drugs.
2. The injury stemmed from horseplay or practical jokes.
3. The event did not arise out of and in the course of employment (the legal test most states apply).

Fail to navigate these minefields and your business can end up paying twice—first in higher out-of-pocket medical bills, then in surging premium rates at renewal. This ultimate guide unpacks the rules, real-world cases, and prevention strategies so you can keep legitimate claims on track and illegitimate denials at bay.

Table of Contents

1. Why Denials Matter for U.S. Employers
2. The Legal Bedrock: “Arising Out of & In the Course of Employment”
3. Intoxication‐Based Denials
   • State statutes & burden of proof
   • Marijuana complications
   • Investigation timelines & testing tips
4. Horseplay: Where Fun Turns Expensive
   • Innocent bystander vs. active participant
   • Recent case law spotlight
5. What a Denial Really Costs (Spoiler: 55 % More)
6. U.S. Rate & Premium Impact—Sample Pricing by Carrier & State
7. Six Steps to Prevent Denials Before They Happen
8. How to Fight Back: Appeals & Alternative Remedies
9. Key Takeaways for Owners, HR, and Safety Managers

1. Why Denials Matter for U.S. Employers

A national study of 150 Lockton clients found that 6.9 % of WC claims were initially denied between 2013–2017. Even more eye-opening: 67 % of those denials were later overturned—and the average denied-then-paid claim cost $15,694 versus $10,154 for claims accepted up-front. (businessinsurance.com)

Denied claims also create:

• Hidden payroll costs—managers fill in for injured staff.
• Higher Experience Modification (E-Mod) factors—raising premiums for up to three years.
• Litigation exposure—many denied employees lawyer-up, leading to settlements that dwarf what paying the claim would have cost.

Bottom line: preventing bad denials is just as important as preventing injuries.

2. The Legal Bedrock: “Arising Out of & In the Course of Employment”

All 50 states require a nexus between work and injury. Courts look at:

• Place – Was the employee on the employer’s premises or a location they were required to be?
• Time – Did the accident occur during paid working hours or a reasonable extension (e.g., lunch on-site)?
• Activity – Was the employee doing something furthering the employer’s business?

Alcohol, drugs, and horseplay each challenge this triad in different ways.

3. Intoxication-Based Denials

3.1 State Statutes & Burden of Proof

Most states give carriers an affirmative defense if intoxication is the proximate cause of injury. Key variations:

Where testing is delayed past 8 hours (alcohol) or 32 hours (drugs), alcohol may metabolize and carriers can lose the defense.

Tip: Have a written post-accident testing policy and document employee consent or refusal within one hour.

3.2 Marijuana Complications

• Medical vs. recreational: 24 states (including NY & CA) permit medical use, yet workers can still be denied if intoxication caused the accident.

• THC detection ≠ impairment: In Rose v. Berry Plastics (OK, 2018) the court ruled that THC in blood did not automatically prove intoxication sufficient for denial. (ncci.com)

• Reimbursement split: States like Delaware require carriers to reimburse medical marijuana; Massachusetts does not. (ncci.com)

3.3 Investigation Checklist

1. Immediate medical care first—your duty under OSHA.
2. Secure witnesses & CCTV footage.
3. Offer drug/alcohol test (chain-of-custody lab).
4. Document workplace policies issued to employee (handbook signature page).
5. Consult counsel before issuing denial—especially if marijuana is involved.

4. Horseplay: Where Fun Turns Expensive

4.1 Innocent Bystander vs. Active Participant

Courts in most states compensate innocent victims of horseplay but deny benefits to instigators. The gray area: mutual horseplay.

4.2 Recent Case Law Spotlight

• Ocasio v. Camping World (VA Ct. App. 2025) – Collision with a golf cart during a prank was ruled an assault, not horseplay, voiding coverage. (insurancejournal.com)
• Kammerer (OR Ct. App. 1996) – Employee struck by plastic tag tossed in jest was awarded benefits as an innocent bystander. (businessinsurance.com)

These cases show why supervisors must enforce zero-tolerance horseplay rules and document prior warnings.

5. What a Denial Really Costs

Source: Lockton Workers’ Comp Denial Study (claims 2013–2017). (businessinsurance.com)

Remember: litigation expenses and penalties for “unreasonable denial” (up to 25 % in California) stack on top.

6. U.S. Rate & Premium Impact—Sample Pricing

6.1 Average Employer Cost per $100 Payroll

*National Academy of Social Insurance dataset via Kickstand Insurance. (kickstandinsurance.com)

6.2 Carrier Benchmarks (Small Business, $300k Payroll)

Premiums spike when your Experience Mod rises after costly denials—one more reason to filter out alcohol/drug/horseplay incidents.

7. Six Steps to Prevent Denials Before They Happen

1. Written Safety & Substance-Abuse Policies—signed by every hire.
2. Supervisor Training—recognize impairment, stop horseplay.
3. Post-Accident Protocol—medical first, testing second, documentation always.
4. Early Claim Reporting (< 24 h)—late notice breeds suspicion.
5. Accident Investigation Team—HR + Safety + outside adjuster.
6. Leverage Pay-as-You-Go Premiums—cash-flow friendly and encourages accurate payroll reporting, helping avoid under-reporting penalties.

8. How to Fight Back: Appeals & Alternative Remedies

• Internal reconsideration: Supply negative toxicology, eyewitness affidavits, or proof the employee was an innocent bystander.
• State administrative hearing: File within statutory deadlines (as short as 30 days in Florida).
• Third-party civil suit: If assault was personal, carriers may be off the hook but the injured worker can sue the perpetrator.
• Overlap with short-term disability or group health: Coordinate benefits to avoid double payments.

9. Key Takeaways

• Alcohol, drugs, and horseplay are responsible for a disproportionate share of denials—even though they’re hard to prove.
• Denials add 55 % in claim costs on average once they’re overturned. Prevention is cheaper than litigation.
• Fast testing, thorough documentation, and clear safety policies are your best defense.
• Premiums vary wildly—from $0.41 in Texas to $1.34 in California per $100 payroll—so denial fallout is magnified in high-rate states.
• Choose carriers offering pay-as-you-go billing (Pie, Travelers) to maintain cash flow while keeping claims transparent.

Ready for deeper insights?

• Explore covered vs. uncovered injuries in What Injuries Does Workers' Compensation Insurance Actually Cover?
• Learn why commute accidents often land in the gray zone in Are Commutes Covered? Gray Areas & Exclusions in Workers' Compensation Insurance
• Discover hidden pitfalls in Coverage Gaps You Didn’t Know Existed in Workers' Compensation Insurance Policies

Stay proactive, stay compliant, and keep horseplay in the break-room lore—not in your loss runs.