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It's case #2 and the issue IS with the independant who also seemingly gouged him for a $1000 labor charge as well, right? The part itself retails for about $2400 and they then charged another $1000 for a 2-3 hour job?
It's not up to either Volvo or any dealer anywhere to inform any independant of any info found in Volvos manuals, SBs or Tech-net notes. It's completely up to any independant shop or person to get any and all necessary info themselves if they're going to attempt to properly repair any type of car.
It'd be hard if not impossible to somehow try to pin blame on anyone doing prior service work as the main problem here now was last created by the independant shop. There's also a SB or tech-net note regarding proper fluid PN (synthetic) with specific info on the correct amount as well. When new, they usually come filled with the proper fluid but it can leak out and the installer needs to check it and fill with the correct fluid.
Another point trying to get any warranty related help with a car past warranty by mileage alone is that FORD now owns Volvo AND they ARE cutting back on extending what use to be called "good will", which typically only went slightly past warranty and that'd be IF the customer was a good dealer customer (one who maintained the car at the dealership). It's my guess from here that anyone from Volvo knowing that your last repairs were done at an independant will not even care to talk to you as it's not then Volvos problem.
I've also seen angle gear failures on cars still within warranty and caused by driving on the included space-saver spare tire too far (as admitted by the owners) and even though the car was still under warranty, Volvo denied a replacement angle gear through warranty as a result.
It's obviously a bad situation but at this point your major "beef" is with the independant, not Volvo.
Want another idea how you can still keep driving the car "as is"?
Remove the driveshaft that connects the angle gear to the rear viscous coupling and the car will then be like any 2WD/FWD V70. You then won't have ANY AWD related problems and can still keep driving the car w/o spending more $$$.
The ONLY problem you might then have is selling the car and that's IF anyone buying it notices the missing driveshaft. Most dealer salespeople would never know until the car is later safety inspected but if it's a lease trade-in, it's not safety inspected for quite some time and it's never done by the same dealer where it's returned. In other words, I think you could pull it off.
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