I just don't know what to say here to offer any help. Of course they should have known the extended warranty only covered the rig they had insured it with. It's just like a car. You need different insurance for each different car and it doesn't automatically transfer over. (well you get automatic coverage for a short time when you add or trade a vehicle, but eventually you have to change the policy)
As far as the extended warranty, I doubt seriously any extended warranty would cover any water damage. For it to get as bad as it did, it's obvious the coach wasn't checked regularly.
I'm not sure what you mean about the steering system? Is the motor you are referring to the engine on the motorhome, or possibly a motor under a slideout that got wet?
I'm sorry about your problems, but I'm guessing you won't get much help from the dealer, at this point in time.