No, engine failure is not a feature of LFS currently (nor is there any certainty that it will be in the future), but it is possible to damage the engine so much that it is pointless continuing on. Having said that, to get your engine to this stage requires deliberate and persistent abuse.
If engine failures ever do become a feature of LFS it would be wise to make sure that failures do not occur randomly, but only when the engine has been duly mistreated.