Saw a situation a few years ago where a commercial turboprop had an altimeter failure.
This was before transponders were used in NZ.
One static source had iced over, the other altimeter malfunctioned. A pure (and unusual) coincidence. The a/c was in IMC.
(This, of course, by the definition in MATS, is an emergency situation. I declared an incerfa via our ACC supervisor.)
The radar controller (I was the planning controller) used lateral separation; there is no relevant vertical separation criteria for such an event. (Makes sense.)
Next issue was terrain clearance. Although when the altimeter was last known to be working, terrain clearance was more than ample, and almost certainly was going to remain so, this could not be guaranteed until the aircraft was VMC.
The answer? Temperature.
Fairly frequent OAT readings were obtained from the aircraft concerned, referenced against the expected temp gradient for the day and area, and (most importantly) compared with readings from other aircraft in the vicinity, preferably at similar levels.
This is not foolproof. Unexpected inversions or temp gradients occur, particularly in frontal conditions. The controller was able to build quite the picture, MET-wise, of the temperatures expected along the route for the flight based on the reports he received, and frequently updated. Smart cookie.
Worked. The flight was able to be vectored (once again, with the assistance of reports of conditions from other flights in the area and along the projected route) to an area where the flight could be continued in VMC. The next ACC was informed of the situation and accepted the flight in due course. It went to where it was going, landed normally. IIRC he got a sincere round of thanks from the crew for thinking of this, and helping make it work.
A bit of met is good to have. Maintain a working (living) awareness of what the weather is doing.