I've encountered this on occasion. As far as I know, it's always meant to happen to characters who are knocked unconscious with three wounds. In particular, it also seems to happen when characters, including those with no preexisting wounds, die to raw damage (e.g., from Disintegration) or from some very specific instant death effects (happens with Belranga's Shattering Screech vs. petrified characters, and I think I've seen this happen due to a near-death character hit by a Wizard's Death Ring spell as well). I have no idea if any of this behavior is consistent or whether it's an intentional mechanic outside of characters dying with three extant wounds.