I had a similar problem with paladin of white dragon attacking my water monster while it was facedown defense.
I believe the sea lords amulet is only applied to monsters while they are face up, or immediately after being flipped. (neither paladin or barrel dragon flip the target in order to activate their effects)
If your water monster was face up however, then the game is definitely bugged.
I had the same problem with a set monster that was destroyed by Tragedy. Imo the amulet should prevent set water monsters from being destroyed by card effects too since the way it is now is kinda weird/ shitty.