Sounds like your grandma has dementia setting in. After an episode like that, she might have to take another test to drive again (if it gets that far). I'm not trying to upset you any more than you are, but trying to lay out what her consequences might be.
For an 85 year old woman to drive to another state, total the car, that's not going to be an easy thing to shrug off. Her insurance may drop her, she might need psychiatric evaluation, maybe move into Assisted Living. None of which sounds nice, but could've been so much worse if anybody got hurt.