Azure Policy can evaluate the existence of extension settings to determine compliance. However, the existence condition in the policy definition needs to be written correctly to evaluate the extension settings. The existence condition should use the same language as the policy rule for the if
condition and should be evaluated against each related resource individually. If any matching related resource evaluates to true, the effect is satisfied and doesn't trigger the deployment. It's possible that the policy is not evaluating the extension settings correctly due to an incorrect existence condition.
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