The bug seems to have something to do with that particular situation though - other cases even simply repeating that same notch around seem to work ok, like this for example (3DM also attached):





Also if the notch is just a little bit wider it also seems to work ok, like this:





So probably the bug is something like it thinks that the fillet is nearly making a full 360 degree turn and it doesn't try to extend the ends of it in your particular original example.

- Michael