As per my understanding by default, the Error1 value is FALSE. So when the UiElementExists activity detects the UiElement, then the Error1 variable will become TRUE. Thus, it detected your error element.
If the real problem is that it does no detect the Error Message, one thing to check is the Selector used. I noticed it starts with "<webctr.l.>. Is the UiElementExists inside the BrowserScope? If not, you could try using the Full selector with “”
By the way, my first reply meant after you had done No.1, you could do No.2 to process or log the error then proceed to your next item.
Great that you can upload image already. Maybe you can also upload your xaml, if ever it’s still not working.