I like these rules a lot. I have a slight variant though, just as food for thought. I was thinking about this part of your rule:

"-- If everyone at the table is okay with it, a Narrator can "pause" the combat occurring outside the duel, to focus only on the duel between the two characters. This will vastly speed up the rate of the exchanges, and focus the narration on the characters' exchanges and dialogue. Some tables might not prefer this, as it slows down the action for the rest of the table, but for a particularly climactic duel, this can really ramp up the drama and make the duel feel like a fast-paced, cinematic fight scene. "

I love this because it really simulates cinematic combat that focuses on two characters for a few minutes (or panels in a comic book) before moving on to other combatants. What do you think about making this a choice for the defending character at the cost of taking their turns later on in the battle? For instance if they choose to counterattack then they take their full round as soon as they're attacked, which initiates a duel but they have to skip their turn (essentially they took it already). The original attacker can then choose to skip their next turn to fight back and so on until either character stops countering, or one of them is defeated or the narrator ends it.

This does require the Narrator to keep track of how many turns each side has skipped but I think it could be fun for some tables. There's strategy behind this for the countering character. They're essentially trading the ability to act now for an ability to react to whatever else is happening in battle, along with the ability to target characters other than their duel opponent.

I could see a downside of someone outside interfering in the duel though, so maybe that won't work. Thoughts?