After another attempt at the same battle atop the tower, I lost 2 varl. I was able to move on with the game, however. The continue button worked. When the next battle opportunity came at the base of the tower, and setting up in the barracks, all the units were there and the two varl that went down in the previous battle were ready for battle with no injuries showing for either one.

The other thing that I have found consistently is upon accepting a follow up battle immediately after the first, no number shows at the base of enemy units for the amount of damage that can be inflicted on that unit. That is important to me in play when deciding which unit to attack or make a different choice of a move.