Did the chip kill the kid, if so how? So far this is just circumstantial.

I'm no doctor but it's HIGHLY unlikely that the chip killed the kid. A really bad reaction to spicy food might, at the worst, be vomit. You will get sweats, your nose will run and your tongue will burn but your risk of death from eating even REALLY spicy food is nearly non-existent unless you eat like a pound of it.
That being said, there are some effects that might make you want to die. For example, what goes in must come out and that can certainly be unpleasant. Also, gentlemen, if you need to urinate after handling extremely spicy food, make sure you wash your hands thoroughly BEFORE handling anything delicate.
But it allows the family to have someone to blame besides the fact their little cream puff took all of mommy's crack.
Yes, I am cynical.
I am also probably right.
Capsaicin is a very selective neuro simulant which kills insects by locking up their nerve systems. Sort of like strychnine for bugs.
It may be quite possible for some individuals to be unusually sensitive to capsaicin, to where they could ingest a lethal dose that would leave other people unaffected.
Think of peanut allergies as an analogy.
I would not be surprised at all to find that this kid died from the overdose of ghost peppers, probably from a lockup of his intestines followed by a cascade of circulatory blockages.