I had this problem too, and found a solution.
PROBLEM: On my phone, in the Zenwatch Manager app, under the "Cover to Mute" setting, I would tick the box next to "Incoming call", then "apply", but when I would go back into that setting, the box would be unticked.
SOLUTION:: On the WATCH, start FoneHelper (touch the clock to get the main menu--says "speak now" up top--scroll down and press the menu item "start", scroll and press "fonehelper). You will then have the option to toggl "Cover to Mute." I was able to enable the setting from that.
*Incidentally, when I do it that way, I can immediately see that choice reflected on my phone, in the Zenwatch Manager App. I still cannot use the Zenwatch Manager to enable this setting, but I've succesfully done it via my watch multiple times
Hopefully this is helpful for someone else as well.