If it does happen, warranty covers this? I need to get one soon...but I was also thinking of getting a regular watch.
It's going to be up to Apple to decide whether to cover it. It appears to be a manufacturer defect. But prove it.
So it's not explicitly covered by the warranty unless Apple acknowledges that it's a defect or a class action suit forces a recall.
Usually if Apple refuses enough of these kinds of repairs, a class action suit gets filed. Happens a lot with Apple.
I've had Apple refuse to repair items that arrived physically damaged, stating that they don't cover physical damage or cosmetic issues.
And I've had Apple honor replacement of things that were not required by warranty.
So... it's generally like playing Russian roulette. Throw the dice and see what happens.
Myself, I don't buy anything directly from Apple anymore. I buy stuff from local stores that give me a no questions asked return period. Doesn't matter if I just don't like the color, or if I smashed it with a rock. That's more comfortable for me than buying something that arrives broken and Apple acting like I broke it in the 5 minutes between signing for the package and my calling Apple.
I've had numerous items come straight from Apple where the packaging was perfect looking inside and out, but the device looked like somebody played street hockey with it on pavement. I won't buy from Apple anymore because of this. Every Apple product I buy is now purchased locally so that defects are handled immediately.