I like the idea of Duels ... could be over various things, don't have to result in Death/ Civ transferral.
On to "Duel for EVERYTHING" duels ... I think that upon Sov defeat/death his capital creates the "Loyalist" faction (for instance: Tarth Loyalist Faction)
Each of the Defeated Sov's cities has 2(Charisma)% chance to join the Loyalist Faction, and each of his armies has a 3(charisma)% chance of joining the same faction.
All other Cities and Armies go "rebel" (barbarian/independent).
Once the victor personally approaches a "rebel" city or army he has a 2(Charisma)% chance of instantly converting them to his cause ... otherwise he has to defeat them in battle (if rebel army retreats or panics its automatically converted)
Assuming that the Defeated Sovereign already has "game over" (alternatively could "go Gandalf" and be all hidden/mysterious .... ) ... the Loyalist faction becomes a Minor Civ ruled by the surviving family line and remaining Champions.
The "next in line;" your heir or 2nd in command, could become the new Minor leader in charge of this minor nation. It would attempt to regain its lost cities belonging to the rebel faction ... and might even continue the war against your Nemesis who defeated you in the duel.
Now ... assuming instead of "Game Over" the Sovereign instead went into hiding ... he could "go Gandalf" while concealed as an Independent NPC, questing for a hidden magical Item or some sort. Then if he finds what he is looking for, etc, he can "reappear" dramatically during a big battle, and re-take control of the Loyalist Faction's cities and armies on the Strategic Map.
To me, that would be a pretty awesome way to "stay in the game" after being defeated ... even if your empire is far weaker than when u left it.