I have seen it.  It happens when you are rolling up an Empire.  You slaughter their heroes, they retreat to the closest city.  You get there, and they are all at 1hp.  Many of them have one level in Death magic, and have no other spells but berserk.  They cast that, on themselves, and on their friends.

Mass die off.

They all retreat to the next city.  Repeat until they run out of cities.

If you look at the picture for turns 86-88 of this playthrough, some of the fights are exactly like that.  Hint: the one where all enemies lost exactly 1 hp.