This is a bug. It's related to hit order.
We're fixing it up in this week's update. In a nutshell, the scenario punishment really only drops your health to 1, but this is when you hit the foe (as opposed to at the end of combat). If you have the first strike trait or something similar, this health drain will take place BEFORE the opponent damages you, so gg.
Shouldn't take place once the new version is live (tested now with the First Strike glyph and everything seems in order), but you'll know what to look out for.