Made a video for you, completely blank server with only v0.1.16 loaded and Monument watcher, no where near any monuments / pvp zones this is a small 1800 dev map.
Default configuration loaded also and no permissions assigned (assuming defaults).
https://medal.tv/games/rust/clips/k1gl4v6pdi-pUNf-1?invite=cr-MSwySXYsMjA2MjI0ODgy
As you can see he can attack me and I can attack him and we can actually kill but not loot each other.
Same issue does not happen in 0.1.14 or 0.1.15 as I've tested that.
PS: No console or F1 errors.