@Whelanch -
I looked at the instructor guide page dealing with module restrictions: They do not mention your specific case, so I left a comment asking about adding that information to the page.
Of course that does not answer your question, so I tried it out in my playground with a dummy student. The score on the quiz without the penalty is used. matter of fact it shows that score on the module page for the quiz (i.e 10 out of 10). In the instructors gradebook it shows up with the deduction, but if you click on the grade box it shows the 10/10. For the student, I am not sure what they see because for some reason my gradebook would not come up for my dummy student.
In any case, it looks like you are okay with the 10/10 restriction on a late policy quiz.
Ron