Are there any masters that practice this or have there ever been documented evidence of it happening in the past?
No. Or rather, if there are, they should be ashamed of themselves.
Or is it something that just developed from legend?
Yes. Maybe somebody did some internal damage with a body shot one time. His enemy dies a few days later and suddenly everybody is talking about his "poison fist." He figures, what the hell, might as well use this to my advantage, supports the rumor, and a myth is born.
Without a well-developed knowledge of medicine, a strike that causes internal injury could well have been perceived as something magical.
The cinnabun palm is deadly, especially when combined with the tomato kick. - TenTigers