An entry dated April 28th, 2017 in Apple's internal repair system reveals the new policy:
Apple has extended Service coverage for eligible Apple Watch (1st gen) models with an expanded/swollen battery to three years after the original date of purchase. Eligibile devices will be covered for two years beyond the original 1-year Limited Warranty.
The news comes just after the Apple Watch's second birthday on April 24th. If you've done an out of warranty repair on your device due to a swollen battery, you may want to contact Apple to see if you're eligible for a refund.