Suppose a client sends insert(0, "A"), but the connection is interrupted and no response is not received. The client can reconnect.
If the client discards the outstanding change, then it will be lost if the server did not receive it.
If the client retransmits the outstanding change, then it will be duplicated if the server did receive it.
Does operation transforms address how this case is to be handled?
I'd say this is outside the specific scope of operation transformation. It depends on the protocol used for communicating with the server. (Also note that not all applications of operation transformation rely on a central server).
If a central server is used, usually the server sends an acknowledgment to signal that it received an operation. However, what happens if the ACK signal gets lost? This can be mitigated e.g. by assigning an ID to operations: if the server has already seen an operation with the same ID, it will simply ignore the operation and re-send the ACK.