Fourth possibility!
There is some merit in saying wounds above hurt are not cumulative.
Reading HeroQuest and HeroWars rules and the Heroes book, there is no mention of stacking for impaired, injured, or obviously dying. As there are clearly rules for stacking hurts as well as adding hurts to the other states I think by omission they may imply that you don't get worse.
Example:
You are out of favour with your clan "impaired", and you attempt to
make it up by praising the chief's son at the next moot. You are at a
-10, and you end up with a minor failure, which leaves you impaired at
-10.
In this instance the negative was worked into the contest, and the outcome is totally up for grabs.
For combat examples you need to focus on the goal of the contest. Wading into a fight with -50 skills may have nothing to do with physical injury, and even if it does, the outcome of the fight may not.
In the case where a character is physically injured and he wades into a fight with physical consequences it may be ruled that he won't get any better, but there is no reason to stack consequences up to make him worse unless he suffers a total defeat.
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