It leaves close to no room for prioritization because the prioritization is predefined via the policy. We've had bugs on edge cases - the odds of an end user hitting them was very small (but not zero). Either the product owner (or whatever you want to call them) gets to prioritize the backlog, or its someone else - in this case it sounds like the engineering team.

In the world we have more than just bugs. We also have features, and refactoring and whatnot. Prioritization should be done across all tasks, so a bug could be "medium" but the team might not even work on bugs this week unless they are a show stopper.

Isn't this policy overruling the judgement of the team/product lead and focuses too much "only" on the bugs?