The problem:

It took me almost a month to install thunderbolt display firmware update 1.2 on OSX Yosemite.

The update just failed every time I tried to install. Even more annoying, it miraculously reappeared in the updates a couple of days after the botched install.

The solution:

My MacBook was connected to my Thunderbolt display with its shell closed. All I had to do is to open the shell and the update installed just fine.

A Warning:

Doing what Apple suggest here just wasted time.