Seeping Oil Seals

I have a 2001 VW Passat 4-Motion that has been detected by the dealer as having a Category #1 oil seal weeping condition. The smell from the car we think is causing a potential toxic reaction with my Wife who has suffered with respiratory and sinus difficulties for a few months now. She has indicated that the car has smelled like oil for some time. She is the only driver of the car. The dealer has acknowledged the condition but indicates that until the condition reaches a Category #3, this won't be covered by the warranty. The smell from the garage into the washroom and main house was so strong last week that I wanted to seek further advice about this situation. I am going to talk to the Service Manager today and hope to speak with a factory rep as well. Any advice you can give would be appreciated. There is about 54,000 miles on the car.

yea vw made new guidelines for oil leaks and replacement procedures. Untill theres visiable oil leaking onto the ground from the vehicle vw wont cover it. its pretty lame but its vw's way of making money. just go back and say its leaking on your garage floor and you dont want a bigger mess to clean up