Nginx keeps trying to serve a file?

This is my nginx.conf

events {
}
http {
    server {
        listen 80;

        rewrite_log on;

        if ($http_x_forwarded_proto = "http") {
            return 302 https://$host$request_uri;
        }

        location /.health {
            return 200 'OK';
        }

        location /.status {
            stub_status;
            server_tokens on;
        }

        location ~ ^\/([^.][^\/]*)(.*)$ {
            proxy_pass http://$1.$DISCOVER$2$is_args$args;
        }
    }
}

How can this config, which clearly returns a static response for /.health and has no other routes, possibly be having this error? At no point was nginx directed to look for a file.

[error] 16#16: *2 open() "/usr/share/nginx/html/_health" failed (2: No such file or directory), client: 10.0.1.21, server: localhost, request: "GET /_health HTTP/1.1", host: "10.0.0.241"

Looks like I had a regression around properly placing the nginx.conf file. I was too focused on routing logic to notice, but the main evidence is that there was an nginx welcome page from the default nginx.conf.