This can be done through a perk on the player that reacts to activation (open the perk window and searches for it, I do not remember the details). Your papyrus fragment will be fired instead of the regular activation process. So you will have to use a command (do not remember which one) to perform the default activation once you're done swapping the items.
So, just to be clear, add a perk to the actor that checks if the actor is activated, then fire a script which equips the required item. The problem with my current script is that the EquipItem function doesn't fire until after the loot menu is closed, so using an OnActivate would solve this I assume (Makes sense to me).
Perhaps use http://www.creationkit.com/OnContainerChanged_-_ObjectReference OnContainerChanged detect if moved to player inventory, you also get an reference to the corpse you looted. However not sure how well equipitem works on dead actors.
I don't think this would work because the item I'm trying to equip is already in the actor's inventory. It only equips if the actor isn't wearing anything with the keywords ArmorCuirass and ClothingBody. I could probably find a way to use this, but I think OnActive is a simpler solution.
Thanks for the replies, I'll test your suggestions when I get home and post the results.