I tried all the methods mentioned here. Nothing worked for me. Then I tried with "setup watch for a family member" option. Then the update worked and installed to phone. After that, when the app prompted to login in with family member apple ID. I gone back to choose set-up for myself option. Then app notified it will reset watch, I clicked ok. Then turn off and turn on the watch and do the usual pairing method. It will work. I think this error is due to some records/data of previous watch is still there with your account. So the trick is this, try to update and install new os in watch with "pair for family member" option. Then exit the setup and pair it with 'setup for myself option'