I came across this strange bug (may not be a bug and may be a feature?) when I defeated the Goblin Camp that spawned. I killed all the goblins in the camp and all was well.
I decided to take their nice green glowing pit as a reward to my town but it seems like its existence in my town caused my footmen to go a bit nuts and start attacking themselves (2 killed themselves before I worked out what was happening)! The only way I could stop them from killing themselves was to quickly pause the game and change them back to a worker. Doing this also threw up a lua error but all seemed well again.
So I thought it may have just been a one off thing, so I made my hearthling back into a footman. As soon as she had a sword in her hand, she was swinging and stabbing herself again and met her own demise.
The goblin fire pit was quickly destroyed after the death of 3 footmen. New footmen since have stayed sane.