Here's the situation.

My Syncronizer gear for 2nd was beginning to go out so I contacted the extended warranty company. They said to take it to an authorized dealership to get the problem inspected. It was verified that the gear was pretty messed up.
Later, I get a call stating that the modifications done to the car would be the cause of the problem. The only modifications currently done to the car was light-weight pulleys, exhaust, and a new aftermarket clutch.

Here's the coverage:

B. TRANSMISSION, TRANSAXLE, and TRANSFER CASE (Automatic and Standard): Case housings, housing covers, and pans; all internally lubricated parts contained within the housing; torque converter; viscous coupling; vacuum modulator; transmission mounts; and range position sensor/switch.
They decided they wont honor my warranty and the dealership informed me that they want me to call and cancel my warranty and if not contacted, they will void it automatically. I've had the warranty for three years now and it lasts for six years so they'll only refund half of what I paid for. (I haven't used the warranty once until this problem appeared.)

The dealership sold me the car with these modifications (except the clutch) as well as the extended warranty which wont be honored because of how they sold it to me.

Now to make matters worse, when I drove the car over to the shop, everything was perfect driving conditions besides the 2nd gear syncro. So when I asked if I could just get the car back, they informed me that my car struggles to move because the clutch is basically out.

I replaced my clutch just 5k miles ago so there's no way in hell that I could be the cause of the clutch going out like that. They obviously either re-installed the clutch incorrectly or one of the workers abused my car and completely messed everything up. I had maybe 4x other people drive my car within one week prior to admitting the car in the shop so I have witnesses on how well the clutch was before the car was taken to the shop.

Now my actions is what I'm questioning about.

I plan on going back to pick up the car and speaking with the dealership in person about this issue and getting some sort of compensation to the warranty that was void since I bought the car. Then I plan on finding out on what condition the clutch is currently in. If they decide they wont honor the compensation and the clutch is actually shot, I plan on sueing them to get the clutch repaired as well as the transmission and getting the compensation from the warranty.

Second question would be if I have a case on this issue.

 

I'd sue for selling you a DOA warranty, if it was supposed to be a comprehensive powertrain warranty or bumper to bumper.

I think you have a case. You're thinking of taking it to small claims court and representing yourself, right?

 

I plan on taking this to JAG since it's pretty much a free service and I don't somehow screw myself.

 

Military JAG, i suppose. Anyway, i didn't know that you could do that with a military court system.

 

I think the outcome of this will mostly depend on how the policy is written. There are probably advisories in the policy regarding after-market parts and other non-OEM conditions. I do wonder if the dealer who sold you the car and policy would be responsible for selling a policy that would not cover the car you bought, but then there's the issue of the clutch you put in after that....