Just spent 45 minutes on the phone with Apple's safety department. They're kicking it up to the "engineering team" now. They said something about capturing the product or something - essentially they want to take my watch and charger and they'll give me a brand new one as a replacement so they can directly get to the bottom of this. My personal conjecture is I had some sort of debris between the watch and charger. I can't really think of a scenario where the middle of the watch or charger would heat to the point of the plastic coating being melted off without some sort of other intervention.
Either way, their safety team is very thorough and I was incredibly surprised and pleased by the protocols they were following.
-I released all liability several times, no lawsuit is happening or even a consideration
-I believe I could've done something to "spark" the incident
-I continue to use the watch and I'm quite happy with it.
Again, no motives. This happened exactly as described and I really do appreciate all of you not immediately trying to discredit this incident and a big credit goes to Apple for having a pretty significant and involved product safety department that actually can openly communicate with the engineers.