My guess would be somehow that his outfit got corrupted. If bad CC isn't a possibility, from what I've read this can happen if Grim somehow has a birthday, although I believe NRaas story progression default sets him to aging off. But it's possible it didn't or glitched or a setting is different somewhere. You mentioned you run story progression and overwatch, what about master controller? There may be a way to fix it with that.
I can't guarantee this will work, but here is what I would try.
First, I'd save and make sure I do a "save as" so I have an extra copy of the save in case something goes wrong.
Exit the game completely to desktop and delete all your cache files in the Sims 3 folder. (CASpartCache.package, compositorCache.package, scriptCache.package, SimCompositorCache.package, socialCache.package) This is harmless and a good idea to do often in general, as sometimes wonky things get saved to cache files. Also, while your game is not loaded, make sure your "CurrentGame.sims3" folder is empty. This is supposed to clear when you shut the game down, but if you crash or it doesn't shut down properly, sometimes it doesn't, and weird stuff happens. If there is stuff there without the game loaded, delete it. It won't affect your game. It's possible this might fix the issue.
If you still have the issue with Grim after getting rid of your cache files and any odd stuff in current game folder, you can try this:
Since you have overwatch, try using it to "clean up outfits" in case it just hasn't run while he's been around or somehow missed him when it auto-runs. If that fixes it, yay!
If not, I'd try installing and using master controller. Once Grim despawns, I'd use that mod to do a hard reset on him. You can do this by clicking either city hall or a computer, select sim from the menu, then advanced, and reset sim. Pick "homeworld" and it should list every sim in the homeworld, including ones not currently spawned like Grim. I'd pick that and hopefully it will run and fix whatever is glitched on him.
Good luck! From what I've heard, Grim changing appearance can be an early warning sign of save corruption, so it might be a good idea to export your family and house to the bin and save them, in case you need to restart your save in a fresh town if things get worse down the line.
