Check Engine Light On problems of the 2010 Nissan Murano

Purchased car Feb. 11, 2014 as a certified pre-owned vehicle and purchased an extended warranty. On or about June 24, 2014 the check engine light come on, called dealer and made an appointment for June 25, 2014. Took car in and was told it was the gears in the transfer case were damaged and had sludge build up. Was told this was covered under Nissan's original drive train warranty (5 year/50k miles), or the certified pre-owned warranty (7 year/100k miles) or the (third-party) extended warranty (5 year/50k miles) which started on 2/11/14. The dealer needed Nissan's approval to proceed with the repair under the warranty. Two weeks (July 11, 2014) later I was told Nissan denied the claim because of sludge build-up in the engine. Which was news to me because I thought this was a transfer case issue - also on July 11, 2014, I was told the entire engine had to be replaced because it was not the transfer case but a bad seal on the timing cover which cause the engine oil not to circulate properly which caused the sludge build-up in the engine. Nissan blames previous owner’s neglect in their denial of my warranty claim. Extended warranty will not cover because the vehicle is still under the original power-train warranty.