If you also changed the oil regularly and have receipts for them, I don't understand the problem. There is no PCV on the turbo engines. There is a manifold breather hose, but that shouldn't be a problem at 60K miles.
(According to the service dept. Volvo does not have any requirements to flush the engine periodically. Would the technician be able to determine sludge might be a problem when changing the oil?) No manufacturer has an engine flush policy and a mechanic would have a hard time finding sludge.
What caused the engine to seize? Because it was in the mechanics hands, I would expect the service department to at least help with the bill or argue on your behalf to the insurance company. The presence of sludge cannot invalidate your policy. If it isn't in the fine print, then tell them your lawyer will contact them.
Klaus
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98 V70Rawd(101Kmi), 95 854T(85K mi), 88 245(165K mi)
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