Firstly its standard practice for insurance/warranty to deny liability, keep at them with evidence from your mechanic and extracts from the policy and they will probably fold.
second, I used to be an Apprentice Supervisor for the northern suberbs of Perth and was quite surprised to always see a Carnival in the Kia workshops with an engine being replaced. They actually realised the pre 2002 vehicles were defective and replaced alot out of warranty.
Being a 2007 model its a different engine (*just read...3.8V6 from mitsi 380 supposed to be bullet proof)) but it might pay to do some more research to ensure they new engine doesnt suffer the same fate and maybe also be covered out of warranty by Kia themselves.
Always pays to do some research before hand and then walk in for-armed!
http://www.goauto.com.au/mellor/mell...2570280009D8B9
If that fails, I would definitely proceed as you have described with your plan to tackle the problem!
Goodluck
Matt.
** worse case, being a 380 motor I cant see the replacement cost being $10k...surely you could get a good condition, low km, second hand motor or auction wreck for waaaay less than that!
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