Mailing in their Apple Watch or iPhone for AppleCare service is usually done by people who don’t live near an Apple Store. However, those who live close to an Apple Store can still mail in their devices if they prefer, as it’s easier than waiting for a long time at the Genius Bar. That’s where express replacement comes into play.
Even if you have your Apple Watch serviced, the Apple Store will still need to send it to the Apple repair depot, as they don’t repair watches in their stores.
I agree with you that Apple should be held liable for this corrupt AppleCare service. They sent you the prepaid shipping label for the Apple Watch, which is a clear indication of their responsibility.
Furthermore, whoever took the watch to the repair depot or similar facility should also be held liable for any damages incurred to the Apple Watch Series 5 edition. It’s unacceptable that they switched it with the wrong watch or even a different, damaged one instead of a replacement.
Since you’re still unable to get reimbursed from Apple for this issue, I’m curious if you could also email Tim Cook about it. I recall a similar case where a titanium Apple Watch Series 7 wearer didn’t receive the correct watch with blood oxygen monitoring. He had sent an email to Tim Cook, and Apple’s executive relations department responds to these emails from customer feedback.
Express replacement is indeed a possibility as you can get the replacement Apple Watch while you still have the existing one, and you can also easily start wearing the new one and transfer data on your own time instead of being without it while the replacement comes. But it’s exclusive to AppleCare + or AppleCare one, the watch still has to have the existing coverage renewed in order to do that.