If a single contact in a parallel circuit shorts out, can it ark?
There will be an arc, due to inductance in the wiring and the battery itself. 

Any time you interrupt the flow of current through a circuit which has inductance, a voltage is produced equal to the rate of current change multiplied by the inductance (this is actually the definition of inductance). If the current changes quickly then a high voltage will be produced. 

When a switch carrying current opens it tries to instantaneously drop the current to zero. But this can't happen because an infinite voltage would be produced. So the voltage rises until it forms an arc across the contacts, which then allows the current to drop more gradually. This continues until the energy stored by the inductance is dissipated in the arc.     

In your case, even though the other batteries 'take up the slack' and supply full current to the load, there is still an (attempted) instantaneous drop from 20A to 0A in the circuit of the battery that became disconnected. Since all wires have inductance, some arcing will occur. However if the wiring between batteries is very short and fat then the inductance (and arcing) will be minimized. 

A little bit of arcing isn't necessarily bad. It actually helps to keep contact resistance down by punching through the oxide layer that forms on the surface of the metal. This is important because at high current, even a small resistance can make a big difference to how evenly the individual batteries discharge.