@Dean Egan, Thanks for posting in Q&A. The Encryption of data storage on a device setting generically checks for the presence of encryption on the device, more specifically at the OS drive level. Currently, Intune supports only the encryption check with BitLocker.
https://learn.microsoft.com/en-us/mem/intune/protect/compliance-policy-create-windows#encryption
Please go to the affected device to see if the drive is encrypted with BitLocker already. If not, please configure BitLocker policy to encrypt it.
manage-bde -status https://learn.microsoft.com/en-us/mem/intune/protect/encrypt-devices
Please check the above information and if there's any update, feel free to let us know.
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