Even when the contact appears closed, if the size of the Initial substep is too large, the moving part can pass through the contact and give you that error.
Increase the number of Initial Substeps by a factor of 100 and try to solve again. If you get the same error add another step to the number of steps and change the load applied in Step 1 to 1% of the original load, then Step 2 can be the original load. This works if the load is a force or pressure but not if the load was Standard Earth Gravity. In the later case, you have to replace Standard Earth Gravity with Acceleration so you can apply 1% of 9.8 m/s^2 in Step 1.