Just encountered this and wanted to bring it to everyone's attention.
Referenced in a DGN file with a Terrain Element not using Client Standards. So I went to its Properties and enabled Override Symbology so I could assign an Element Template and correct its display.
(Minor Complaint Aside: Why must we unselect and reselect a terrain element before we can actually assign an Element Template after toggling on the Override Symbology setting?)
So after assigning the Element Template, the display was still incorrect. Being the experienced use that I am, I tried to check the Level Overrides. However, no matter what I tried, the Level Manager would not display the levels used in the Element Template. After trying a number of different things, I had just about given up, but decided to try one more thing. In the Level Manager, I selected the file in question so its levels would be displayed. Next, I selected one of the levels listed and then pressed Ctrl+A to select all levels. Then, I used the right-click menu on the Color, Weight and lastly Color columns, selecting All overrides off in each. Bingo! The Contours finally displayed according to the client standards.
While this is an OK workaround, if there were elements on levels that I still wanted to use level overrides on, I would have to manually add them back in.
It seams to me, that when we use the Override Symbology setting in this manner, we should be able to set or clear level overrides in the level manager either in the active files levels or somewhere.