How do Speed sensors fail?

That looks like it was rubbing on something. Was it secured? Correctly? It looks like it was at an angle.

 

That also might have been caused by a foreign object getting in there. The rotor on the axle that passes near that pickup has notches or teeth, like a gear. There is normally no mechanical contact—the sensor just picks up the teeth passing by in its magnetic field—but if a piece of something hard does get in there somehow between the sensor and the rotating teeth, well ....

And because of its magnetic field, the sensor might sometimes attract a small piece of metal debris from somewhere.

 

How does (anything) fail......is usually just a waste of conversation time and effort.
Regardless of the part in question, the answer usually is: There is a multitude of ways.......and probably nobody knows all of them.
AND it wouldn't really serve any useful purpose to you if you DID find the actual list.