It's when they attack your ally, hit or miss you heal a bunch. There's no proviso for it not triggering the challenge (ie, including the paladin in it). Unless they errata-ed it?
It really really screws area-effecting monsters, who will even miss your allies and heal them tremendously. There was a whole thread about a beholder hit with this who basically got nothing done cause it automatically eye rayed every turn and healed folks more than it damaged.
Then again, I'm not sure I'm the best judge - I mostly hate the paladin style paragon path options of uber marking. Dazed and weakened for the encounter, heal everyone, etc. Makes things more boring
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