It would work pretty much the same way it does now, but extended.
The way it works now is, when player temporarily loses connection (or let's say "has a long lag") his car disappears from the track on the server (with his nickname being shown in the last received position) while the player himself keeps driving, and if the connection is quickly restored, he reappears in the new position where he is supposed to be according to the player's run.
However when the connection is not restored within usually 30 seconds, he's "kicked" from the server and his run terminated. Usually the affected player is able to reconnect to the server immediately, but he's no longer in the race.
So my idea is to extend (or adjust) the period affected player is driving "alone", and rather than ending his run after 30 seconds of no connection, LFS would attempt to reconnect to the server (which is usually successful when done manually) and if the connection is reestablished, let player continue in the race the same way he would if he just had a big lag.