Hello Philip Patrick, I'm glad that you were able to resolve your issue and thank you for posting your solution so that others experiencing the same thing can easily reference this!
As Microsoft doc suggests setting the minimum TLS version to be permitted on requests to storage. The default interpretation is TLS 1.0, for this property, refer article for more details.
Since the Microsoft Q&A community has a policy that "The question author cannot accept their own answer. They can only accept answers by others ", I'll repost your solution in case you'd like to "Accept " the answer. Accepted answers show up at the top, resulting in improved discoverability for others.
Issue: Customer unable to deploy a storage account with an ARM template (generated from Bicep) with lifecycle management policy.
Error Message:
Policy rule fails with Internal Server Error
Solution: Customer rolled back to TLS1_2 from TLS1_3. After downgrading the version, the issue got mitigated.