Does it intentionally not work?  I actually had a scenario in my non-solo playthrough where my party wiped and Eder was the last one to die, but it still gave me a game over screen a split second after he got up and started fighting again.

you're not the first to mention that exact scenario.

obviously, the game considers you toast if all party members are uncoscious, period, even if it's only for a split second.

probably working as intended.