My experience is that title companies a) would not allow this to happen, by accomplishing a legitimate title search and b) they pay out when this happens.
In queensland the lands title function was divorced by statute from government and put into an arms-length private company, wholly owned by the various government departments which need the function.
I know that it's sometimes confusing to call compensation from government for stuffups "insurance" but my understanding is that there is some industry levy which is used to top up a pot of money to pay out, when mistakes are made and can be sheeted home to the registry function.
Separately people have to try and manage their own risk, sure. But there is a scheme (as I understand it) which is meant to deal with the corner cases where the registry function blows up.
https://www.abc.net.au/news/2023-05-25/mortgage-fraud-gold-c...
is the high profile case which has been discussed here. The state government, which is normally expected to be a model litigant, decided to appeal the judgement they had some burden to meet. The basis of the judgement is that some officer of the registry should not have accepted the lifting of the caveat, the sale/transfer and the reapplication of the caveat. At least one of these things shouldn't have been processed.
If you are interested in learning more you could research the American Land Title Association.
"The Torrens Assurance Fund (Fund) is a statutory compensation scheme designed to compensate people who, through no fault of their own, suffer loss or damage as a result of the operation of the Real Property Act 1900 (RPA)."
Torens Title is a beautiful system. I can't believe how chaotic land title is is other parts of the world. While NSW does still have some old system land, or chain of deeds style land, it represents less than 1% of the land in the state, and that numbers shrinking every year as its titled out.