Tracy,
The error states that the java security policy is preventing access to the specific location on the C-drive. This would be normal behavior if you have the model running inside the modeler and have the emulate cloud security settings turned on. Could it be that you changed the settings for the emulation in addition to changing the security for the desktop?
In a cloud environment access to directories other than the tmp dir in the data/files dir is restricted for security reasons. If you need to pickup files make sure that they are stored in that directory or a sub directory thereof. When running the app on premise you could consider changing the security policy for the model to allow access to a different directory. I'm not sure if this security change would be an option in a cloud environment, maybe you could ask Mendix support for a statement on this.
Hopes this clarifies the issue you are experiencing.