If it is a true "closed loop" then it cant flood your home unless you have a pipe break. A closed loop is just that, "closed". From the time the water leaves the tank until it returns to the tank it is completely contained. It is not exposed to air anywhere along the way so there is nowhere for it to escape.
I have 2 "closed" loops on my tank:
1) Water from tank through bulkhead in back wall flows through Little Giant 4 pump, then through chiller and back to rear corners of tank.
2) Water from tank through bulkhead in back wall flows through Little Giant 4 pump, then through OceansMotions 4-Way and back to 4 corners of tank.
In both these examples the water never has a point of escape, thus the loop is "closed".
Many people misuse the term "closed loop" to describe various flow systems that are actually not "closed" like a sump system.
I have 2 "open" loops on my tank:
1) Water from overflows drains into sump, then through Iwaki 100 pump and back to returns on tank.
2) Water from sump flows through Mag 9.5 to 75 Gallon refugium and then through overflow on refugium back to sump.
In both these examples the water can escape from overflowing the sump or refugium so the loop is "open".
Hope this helps.