Jun 27 2020 10:45 AM - edited Jun 27 2020 12:59 PM
So, I recreated your policy and the label auto applies. However, when I try and open an existing file in the SharePoint Online library in the browser, I get this message;
And if I try and open in the Word app I get the following;
Is this the same as what you are seeing?
Weirdly though, if I create a new file in the library, the policy matches and I can continue to access the document.