It will only heal you for the damage dealt UP to a max of 25% Max HP/sec so happens if the damage dealt in that instance is more than 25% Max HP.
If Chronos has 1000 hp and dodged a 900 (no reduction) damage blazing strike, he will heal at a rate of 250/sec up till the final tick which he will heal all the remaining damage so happens if its below 25%. In essence he still heals for only 900 damage.

This allows Pyro to oneshot Chronos, a good change from the older version where dodge meant he never recieved the damage at all since you can't regen if you got gibbed on the first hit.
tl;dr : working as intended. And some little tidbits for you people :

Oooh, the new hero, Phade, looks like a new melee. Probably strength. The video is on HoN facebook page.