I'm so sorry that I can't really give you a perfect answer, seeing as I have no way of looking at RPGM2k3 at this moment, so I'll being going on what I remember. In the database there is a tab called System, or System2 or something like that. In it is a little check box for "Game over when defeated".
TL;DR- There's a tab in the database. Check "Game Over on loss".