This is very confusing but somehow on API 29 the system navigation bar does not get covered but does on API 33. I only managed to avoid the overlay overlapping with navigation bar is my subtracting window height (currentWindowMetrics) with navigation bar inset (these APIs are available on API 30) along with setting the layout gravity.

I also experimented with several flags but none worked. In conclusion this change was added somewhere between API 30 and 33.