Yes, well it currently works like this: When losing morale a character (that includes aliens and civs) will either panic or become enraged, at that point they become temporally AI controlled (panicking characters will flee while raging ones will fight on their own) on top of that when either one happens there is a chance the character will go temporally "insane" among other things that causes *all* other characters — including teammates and friendlies — to become acceptable targets, they might shoot an opponent a teammate or a civ, but usually teammates are just nearer... unless they are panicking, in that case "insane" causes them to drop their weapon
The insane status only lasts for one turn, even if the character continues to panic/go berserk for longer (of course the shock of having teammates dying nearby — like those (s)he just killed
— might cause a new temporary episode of insanity
So it should be a rare thing... (until psionics get implemented I guess), it's good when it happens to aliens, not so good when it happens to you...