Hi, I am having exactly the same problem with an Iwatch Series 3 and I'm furious. After 3 months of use I put the phone for charge overnight and woke up, put the watch on and then noticed that the screen had literally fallen out of its casing. I absolutely did not knock, damage or submerge the phone.
Went into the apple shop, they were pretty positive about replacing it (but wouldn't guarantee anything) and they sent it off for repair. 1st response came back concluding that I had accidentally damaged it and that there was a point of impact on the edge of the screen and asked for £280 for a new unit. I replied that I had not and escalated the case to the 2nd level of Apple Support. After a week they came back with exactly the same response.
I received the phone back into the store and demanded an appointment with a Senior Advisor. He inspected the phone with his senior technician and concluded the same thing. Essentially they said that I'd hit the edge of the screen in such an acute way that the entire screen had cracked around the rim. They said that this can happen in rare cases and that I'd been "extremely unlucky". Clearly
I explained to the Senior Advisor that there simply must be a manufacturing / design problem with this watch if I've managed to cause such severe damage without even noticing that I've knocked / dropped it. I also explained that if that's what happened and the watch is so weak then Apple shouldn't be marketing it as a sports / activity watch. I also questioned how if I had dropped the watch did the screen not have any cracks, and asked practically how a point of impact on the side could cause the whole screen to detach from all sides. Again they didn't have any answer but said that it was extremely unlucky but they have protocols and there's nothing they can do.
As such my options are 1) stop using the watch I'd paid £350 for 3 months before; 2) pay Apple a quite extortionate £280 for the repair (80% of the price of a new one - so much higher than with screen repairs on Ipads / Phones); 3) take to a 3rd party repairer although none I've found will touch Series 3 screen repairs.
I've had 6 Apple Iphones in my time, 3 Ipods, 1 IPad, 1 Iwatch and Airpods and I've never complained. I feel like this is outrageously bad customer service but am struggling with how to proceed (I've been advised that I can raise a complaint with Apple Support but that they will refer it back to my local store - talk about round in circles!).
Any ideas ?