Unique difficulty adding back a replacement credit card

Has anyone ever encountered a problem adding a replacement card to your Apple Watch digital wallet after you had reported a suspicious transaction through the Apple Watch before? I seem to have come across one in which neither the bank nor apple is able to help. Back in November, I thought I saw a suspicious transaction on my bank credit card and reported it and had a new card placed. Turns out that transaction came through my watch's digital wallet, and it wasn't suspicious after all.

Anyway, when I tried adding the replacement card (which I thought would have been automatically updated), it would fail to complete the process, returning a message "card not added - contact your card issuer for more information." The bank says the fact that it went through the terms and agreement page and all indicates the bank was agreeing to add, but apple was blocking it. Apple says that because it is returning the messages to contact the card issuer, they were approving it on their end, and getting denied by the bank. Which is right?

At one point, one of the tech support, can't recall if it was apple or the bank, mentioned to me that there appears to be a "bad device" designation on the watch after the fraudulent transaction report, and that there is no way for that to be removed. I asked what the recourse is and they said to switch to another watch. So now I can't use the one thing I use most with the watch, which is contactless pay. I can use other banks, but this is the bank card that I use the most frequently.

Just to clarify, I can add and use Apple Pay on my watch with other bank cards, it's just this one bank (Chase), which makes me think it's the bank's issue.

Anyway, wondering if anyone else has encountered this problem.