How does the "failover" setting in cgminer work?
Yes, the failover setting will tell cgminer to mine on a secondary pool when the first pool is unavailable. 
Run cgminer with the following:


  cgminer.exe --scrypt -o http://p2pool.org:9327 -u username -p password
  --failover-only -o http://backuppool.org -u username -p password


This example mines LTC  at p2pool and will mine at another pool of your choice when p2pool is unavailable.