I have worked in dealership shops most of my life,(30+ years) and this is not an unusual situation. The customer plays for and extended warranty and thinks he does not need to do anything to their vehicle but put gas in it until it breaks down, then expects the warranty to take care of it. The fact that the person admits having a sludge problem tells me he did little to no maintenance, the technician involved probably had the evidence in his hands, regardless of the customer's protests otherwise. I too had a vehicle brought to me with a little over 60,000 miles on it, and a hole in the oil pan. That customer expected his extended warranty to fix it. When I removed the oil pan bolts, the pan was held in place by the 3 inches of solid sludge that had formed around the oil pump pickup in the pan. the upper end of the engine was in the same condition. When you buy an extended warranty, READ IT! Every warranty requires you to keep maintenance records on the vehicle, written proof that at the very least minimum manufacturer's guidelines have been followed. It does not matter that he "used products exceeding the manufacturer's recommendations" if he did not change the oil often enough, that is what causes sludge buildup. On the truck I experienced I spent 2 full hours cleaning up the mess in the oil cooler and lines with a pressurized oil flush machine before I would even think about connecting it back to an engine with all that black mass in it.
People always want to blame someone else for bad choices they made themselves, instead of taking responsibility for their actions. This was not a legitimate claim in my opinion, If the engine had appeared to have been maintained, they would not have even asked for records. I have also seen engines brought in locked up, or bearings wiped out, with brand new fresh oil in them, people don't realize that is a major clue with the engine locked up, then they put fresh oil in it to disguise that it was run low or empty, they don;t realize the clean oil does not make it to the filter, which is dry, or into the oil passages, since they are full of filth. Everyone wants to cry and point fingers because they were lazy, or stupid or both.