I experienced something similar to what you just described. I had my young married couple invite both sides of their family over for a Thanksgiving dinner. Suddenly, the child sister of the wife caught on fire (yes, there is a nice fireplace in the dining room). Most of the family didn't even react. Husband and wife, both tried unsuccessfully to extinguish the fire, but alas, the youngster passed away. Grim was suddenly there. Husband did his best to plead for her life, but was rebuffed saying it wasn't possible until Grim had reaped her soul. Then, when he tried, he was still rebuffed. His relationship with his young sister-in-law is good, so I was totally confused. I took a day or two to mull it over. Did I wish to just play through this most unfortunate turn of events or was there something entirely off about it.
Eventually, I rolled back a save and tried again. This time there was no misfortune. I combined parts of the update about the death with the new playthrough and I've gone on from there. If you're able to, I would consider rolling back and try again. I'm sorry for your loss. Losing a child Sim is especially sad. Best of luck.