In Daggerfall Unity, knight orders armor rewards are heavily inspired by The Daggerfall Chronicles description: you get to pick one armor piece for each rank, the armor material becoming better with each rank starting at Iron:
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Iron 0 Steel 1 Silver 2 Elven 3 Dwarven 4 Mithril 5 Adamantium 6 Ebony 7 Orcish 8 Daedric 9
I can see different way to manage that unfortunate coincidence, and depending on whether you think this disadvantage is there for balancing or for roleplay ("knights don't want to have anything to do with daedras"), and how you think game should work with other classes that don't have that disadvantage, you may favor one or another...
- Do nothing. Maybe knight orders smith has some stock or daedric armors to get rid of, and you can sell those for a good price, so it's still a reward. Pros: simple. Cons: a bit goofy, a bit hard to justify from a roleplay perspective.
- shift all rewards by one step, say you receive chain armor at rank 0? The only other thing knights can't wear is leather. Pros: still very simple, fits roleplay Cons: changes game balance a bit. Does not match the Chronicles at all.
- smith always presents armor you can wear, falling back to lesser materials as necessary. Pros: minimal change to balance. Cons: more complex and ad hoc