The line trace is called in the Shoot function(highlighted) in Range_Pawn.
And the Hit event is in the NPC blueprint. The Hit Reaction event (which I highlighted) in the NPC is where the physics animation code is called.
You should be able to see the bug in action by hitting Play and shooting the character’s left arm. You have to time your 2nd shot after the initial shot to reproduce the bug. I’ve found shooting a 2nd time near the end (0.7 seconds) of the physics animation to consistently reproduce the bug.