Lee Co. Mishap
Matthew, what you described is most likely what happened to a Lee Co., FL EC-135 in 2009. The aircraft was in route, at night, over water, to a scene with ALT Hold engaged. As the pilot approached the scene, the power was reduced to slow the aircraft. Once the airspeed slowed below that point where altitude could no longer be maintained by a cyclic pitch input (3X auto pilot) the aircraft insidiously began a very slow descent and ended up in the water. Thankfully, all survived. A key to this mishap is the fact that in this autopilot installation there is no obvious attention getting warning that the selected mode (ALT Hold) is no longer functioning. The only indication present to the pilot is a small flashing icon on the Primary Flight Display. As a minimum, there should be audio gong to get the pilots attention. After this mishap, I made a demonstration of this situation a key part of the checkout in the EC-135. Very few pilots picked up on the autopilot switch over on the first demonstration. It left a solid lasting impression on everyone receiving the demo.