The AC system in the car is now repaired. I had issues trying to find a place that would both do the AC system replacement and work with my third party warranty. Either the job was too complex (that was their excuse, really) or they did not want to deal with third party warrantys due to bad histories in dealing with them.
So I had only one option which was the dealer. I took the car to VW Gallery in Norwood MA who agreed to do the repairs and work with my warranty company. They were extrmemly nice and accomodating as well as informative. In the end the third party warranty covered a little over half the cost to the job which cost just under $2k. It would of cost me more to do the work myself and purchase my own parts, so this is why I opted for this route.
In short, VW Gallery is did a great job and dont by a third party warranty.