No this is intended behaviour. Both players die in that case, and if that wasn't the case, you could go to your next battle with 0 health and then lose immediately.
I could make this a valid strategy for the final boss, but that would lead to some kamikaze strategies which I don't really like.
Thanks for playing until the end!
Ah, that stands to reason. In that case, I would recommend animating the overflow damage immediately, rather than having it as a second step (as inscryption does it), since this would have reduced my health to zero first.
That, and/or have victory determined as soon as someone reaches zero hearts rather than letting the entire engagement play out.