I think SRAM will warranty it anyway, its a Rival, it costs them very little to replace it. And it will keep you happy.
The frame? I think it is still ridable. If your seatstay fails, it is not going to be catastrophic. You'll just feel more flex than usual if it does break. Look at the new carbon bikes with super small seatstays. The chainstays do most of the load carrying.
This is not a warranty issue for cannondale. If they were to sell you a new [upgraded]frame at cost, I'd be happy as well. But at $1600 you were quoted, I'd pass.
Take a better picture of that stay with the macro function on your camera