Probably not a bug.. I think what happens is the first "Is overlapping" condition picks instances of Team1 object. So the remaining System conditions in this event are comparing X for picked instances only. If "Is overlapping" picked 0 instances, then the rest of OR block has nothing to compare.
If you change the event like this, it works:
That being said, there are problems with OR-blocks in C2.
See this comment from Ashley: