How would rust get into the transfer case?

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Hello, I'm having an issue with a local dealership service manager. I have a great warranty company for my 08 Cadillac CTS 4. There was a noise every time I put my car into a different gear (it was like the car kinda jumped) the transfer case was finally taken apart and ended up having metal shavings and a small amount of rust in it. The service manager called me yesterday evening and told me that my warranty company declined my claim do to rust. I did speak to an adjuster supervisor at my warranty company last night and he even told me that when the service manager called my claim back in that my transfer case failed because of rust. The Supervisor from the warranty company said that is the only reason he denied it, and even said to me that this does not sound right. He told me that he has been doing this for years and that the transfer case is a sealed component and rust just can't form unless there was a leak somewhere. I called the old dealership that used to do all the maintenance on my car and he said that this doesn't sound right. That the rust couldn't have magically formed itself without a cause. Can someone please advise me on how a transfer case could fail, I really need help.