Cannot set up new Apple Watch

Greetings! My wife's Apple Watch is lost. I'm trying to set up a new Apple Watch. I can pair the new watch but it fails to set up. I get as far as entering her Apple account and password, and then I get the error: "Verification failed. An unknown error occurred." I assume it's because her old watch is still paired, but I'm not sure.

I've logged into her Apple account on the computer, marked her watch as lost, and deleted it from her account, but it still shows on her iPhone.

Her iPhone has the latest software update and I've reset network settings. I'm stumped. Any ideas?