Has anyone played Civil War Generals 2? They had something very similar, which was very cool. It was very very hard to destroy or capture enemy units unless you surrounded them and made it so they had no where to run. But, if their health/morale was below a certain number, they would refuse to attack at all.
So maybe, instead of dying, they could "retreat" acouple of spaces. But while their health was below, say 25%, they would be defensive only (like scouts).
Not sure how it would work in gameplay, might bog things down a lot, make it boring. (In CWG, it worked because victory wasn't determined by domination or whatever, you won victory points for completing objectives and holding certain spaces on the map. Battles were also a fixed # of turns)