Are grades always an accurate indicator of how much a student learned- or of what mood the teacher was in?

I've discovered recently that due to certain teaching policies, an incompetent teacher can get away with unfair grading practices- taking correct answers and docking points by making up new rules after papers are handed in for instance- and the dean and the school cannot over-ride the grade. At such a college, how are grades any kind of reliable indicator of a student's competence and intelligence?