The fact that it's a current loop certainly makes it plain that it can work without a local connection to "earth" or any other common signal.

Further, if the voltage goes up to >250 volts p-p, then his circuitry has to survive that voltage even though it doesn't have to sense/process it. Voltage sensing on a system that's intended to support parallel fixed impedances may not be the best approach. Current sensing might be a mite smarter.

I remember seeing some old telecom circuitry that relied on the loop current to operate a relay. It can do that without impacting the net current flow. If the goal is to sense an open circuit, then there would be no current flow. If the goal is to sense a short, then there would be current, but no discernable voltage. Other than that, I'm not sure what's defined as "normal" operation. However, if it's that 5-10-volt range somewhere between normal 48-volt (on-hook) battery and the short-circuit condition, it should be easy enough to detet as well. A series resistor and op-amps, possibly configured as window comparators, as someone has already suggested, should easily enough reveal those three states.

RE