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.
The effect of this card just works after goes to the graveyard? Or while is on field with count markers?