Not sure if this was fixed in a nightly build or not, since I don’t play those for fear of bugs galore, but wristwatches counting as covering “arms” doesn’t make much sense.
I mean, yeah, you wear it on your arm. But this makes it so that if you’re wearing something like a trenchcoat or a hoodie, or hard arm guards, you get the +2 encumberance from wearing two things on your arms, despite one of them being a watch. This means either you can’t aim for crap, or you miss out on the arm warmth, armour, and storage of a trenchcoat or whatever.