The coverage cannot be denied by law, as per the Magnuson-Moss Warranty Act. The aftermarket parts you listed have NOTHING to do with the engine having a cracked block. The two facts are unrelated. None of the parts you listed is capable of causing the engine block to crack. There must have been a preexisting defect, or a manufacturing/casting defect that was not discovered by the factory before the block was used to build the engine around. You have to write down the aftermarket parts on your car, Clearly state that the the engine itself is not now, and has never been not modified in any way. Include a statement that the ECU is not chipped, and has never been flashed with performance software, etc.
By law, the denial must be based on the established facts specifically associating the failure with the aftermarket parts. There is no known technical facts that exist that can reasonably show any way for the parts listed to cause a cracked block. There must be a clear association connecting the aftermarket parts, directly as the specific cause of the failure, for Audi to deny coverage and or avoid warranty liability. Without that established known technical association based on the engineering principles that are relevant with the evidence existing to demonstrate cause and effect, any allegations made by the dealer or anyone else, that are not specific to the unique situation and evidence existing with the failure in this case, is irrelevant and does not satisfy the requirements of the law or Audi Policy sufficiently to support or justify the denial. Any allegations that cannot be supported by facts, and evidence existing in the situation as specific to your Audi must be challenged.
The general allegation characterizing your Audi as "extensively modified", does not properly explain or establish any relevant association clearly showing how the aftermarket parts caused the cracked engine block. The dealer's statement of "extensively modified", has absolutely no meaning here, it says nothing at all about the facts of the matter that exist in this case, and has no merit.
Finally, I recommend you consult an Attorney for advice/assistance with this problem. With an attorney's help writting the letters, demand in writing, to the dealership's service manager, and general manager, CC AoA Customer Relations Dept, that only the relevant facts are considered to justify the decision on repair assistance. (You can also request a 50/50 Offer in Compromise, for Customer Good Will, in the last resort.) Finally, Audi has no basis to deny repair help here, so you have to demand that the situation be investigated by the Audi Regional Rep, who will review the facts and evidence involved and decide the case based on the facts, not some meaningless claim of "extensive modifications".
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