That's unfortunate. There really isn't a higher escalation per se but if the person said this is as much as they can offer without further approval than it may be worth asking them to ask for those approvals before giving up.
This is the stage I was at that I explained earlier where I shifted the conversation to the experiencing not holding up to the expectation that was set for me by Apple. The conversation took the form of me being a longtime customer and that relationship had built up a certain amount of trust and this third party, which certainly has a vested interest in not being truthful regarding their apparent involvement in breaking the watch, has somehow tarnished your Apple experience, which you're not accustomed to. There was an additional element in my case where an Apple employee had made certain statements that led me to believe/expect certain things so you may not get the same level of traction that I did. But if, for example, you were led to believe that dropping your watch into the box would be a no muss, no fuss type of situation because of something an Apple Genius or advertisement led you to believe, that would be a good basis to make that argument. You can reiterate the documentation certainly attests to your watch not being broken because the damage is supposed to be remarked in the case file upon receipt.
Now, your last option is to request where you can serve legal papers so you can proceed with a small claims suit, which I think you have a case to make there. Just know you'll have to follow through with that, it can't just be a threat, because your conversation with support will almost certainly be at an end. They won't be threatened into conceding and won't be able to assist you any more after you threaten a lawsuit so don't do that unless you're actually at an impasse, unwilling to accept their offer, and intend to follow through with filing a claim.