No, you can lose by a lot more than 12.
Here is how you do Daemon Instability:
a) Add up combat resolution modifiers as normal (wounds, banners, ranks, etc) for both sides and compare.
b) Figure out how much the Daemons lose by, just like normal. For example, my total is 17, the Daemons 8. The Daemons therefore lose by (17-8)= 9.
c) Take a leadership test. If it is not insane courage (double

), move to the next step. If it is insane courage, the Daemons lose no further models. Wrap up combat as normal (reforms, etc).
d) Add however much the Daemons lost by to the Leadership test, unless they are Steadfast/Stubborn, in which case as normal there is no leadership modifier. To keep it simple, the Daemons are not Steadfast or Stubborn and the Daemons roll a nice, average 7. 7+9=16.
e) Subtract the Daemons leadership from the total in step d). Since there is a Herald in the unit, the Daemons have a
ld 8. 16-8=8.
f) The Daemons lose 8 models.