Ha, good concept.

Again, I woulden't be opposed to it happening like that, though they would have to make those 'claim' spots in areas with enough space to host those fights, which might limit the amount of locations those could spawn.

Perhaps they can alternate between the two ideas. In certain, less open locations, your party gets sucked into an instance. In more open locations, the 'burning circle' opens up and threatens to wipe those who couldn't claim. That would most definitely keep the content varied and interesting.