What happens when a instructor really goofs up a course?

By and large, ff524 as usual has it right: if there is a problem (even a serious one), the responsible people deal with the problem and its immediate consequences, and then life goes on. Smart people will learn from their goof-up, and it will not happen again. Less smart people do the same crap all over again until a higher-up steps in (in the worst case, this may mean getting fired). I am not sure if there is anything much more general to say about this topic.

Some examples from my personal experience:

Losing exam scores

In the university where I did my PhD, a young professor once lost track of 400 final lab exams in a programming course (that means multiple large stacks of paper - not exactly easy to lose). Apparently, he locked them in for the weekend, and on Monday they were nowhere to be found. As there were no traces of a break-in, the theory was that the cleaning lady has thrown them out for whatever reason (as she was the only one with access to the room besides the prof). Following, an entire lab was digging through garbage for one morning, without success.

The prof. sent out a very embarrassing apology, announced a make-up test, and gave students the chance to just get their mid-term grades if they could not / did not want to participate in the make-up test. Following, all people in this lab were extremely paranoid with ungraded test sheets.

Missing a large number of class sessions, or somehow leaving mid-course.

In another course in my old alma mater, an external lecturer apparently entirely lost interest in his course and basically stopped going to his own lecture after the second or third week. He was kicked out fast and unceremoniously. As nobody was available who could teach this course in his stead (it was very specialised), the course was cancelled mid-flight with the promise of a make-up course in the next term, leaving behind a number of understandably pissed students. A policy was put into place that external lecturers should not be allowed to give classes for which no replacement person was available, should something similar happen again.

Provably unfair or wildly too strict grading.

Sadly, the common way to deal with this problem is "better luck next time". That is, in my university, the best one can hope for in case of a very difficult or unfair exam is that the dean talks to the lecturer in private and asks him to make the test easier next time.