How do hydraulic flat tappet lifters fail?

The lifters spin because the bottoms of them are not flat, they are slightly concave. That's what causes them to rotate slightly every up and down.
No, the lifters are convex.
If you set them upright on a perfectly flat surface, concave lifters sit still. A convex surface means the middle sits below the edges so they will rock slightly. You can stick a feeler gauge under the edges of a properly machined lifter.
Me? I always have anxiety about a camshaft failure. I had 2 Comp Cams XE285HLs go bad back to back in 2006. Recently, I bought a Comp Cam thinking that maybe they had improved over time and mine looked like THIS:
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Look at the edges of the lobes on this cam. What you see above is shreds of fabric from when I wiped the lube off to return the cam. There were 7 lobes that had sharp edges from where they didn't properly machine the lobes all the way across. Think of it as a narrow strip of unmowed grass near the street.

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So....I only caught this Because I usually pour the assembly lube in my hand and smear it on the lobes. The edges of the lobes actually cut me in a couple of places. If I had just installed this and then poured the lube through the open sections in the valley, I would have never known. The lifters would have made contact with those sharp edges and failed like yours. The chunks missing at the bottom of the OPs lifters is exactly what could have happened to my 383.
I posted this at FBBO, DodgeCharger.com, 1970ChargerRegistry and Yellow Bullet. The VP of Comp Cams contacted me and apologized. He also said he wanted to make it right. I told him that I understand that stuff happens and that since I caught the problem prior to installation, I'm only out a little time and effort. I didn't post it on the forums to twist their arms to get free stuff, I did it to warn others to closely inspect their stuff when assembling their engines.
I returned the cam to Summit Racing in Nevada and politely declined a replacement.