I run into many chimney flue like this one. I always recommend the insulation be pulled back away from all flues and to Seal the gap between the flue and metal flashing with special high-temperture silcone caulk. I would like to hear others points of views on this. Thanks
Recommend a Level 2 Inspection of all Chimneys and Flues be conducted prior to closing.
http://www.csia.org/pressroom/press-inspection-levels-explained.htm
James, In this case I would probably just move whatever insulation was there (if accessible). It would actually take less time to move it than to write it up and of course, recommend the Level 2.
Many manufacturers don’t specify fire caulking around factory firestops from what I have found. Maybe someone else can expand on this.
Many manufacturers don’t specify fire caulking around factory firestops from what I have found. Maybe someone else can expand on this.
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It could be due to expansion and contraction of the metals. (guessing)
I would check with the MFG on the proper installation of this flue fire stop.
In general:
I believe any recommendation we make should be carefully checked before we tell the client. The potential for mis-information is huge and could make us look bad and should the client DIY. What happens when it’s wrong? 
Does the warranty or service plan get void… “Dam Home inspector told me to do it”…:shock:
Be careful…
good advise Patrick, Thank you everyone for your replies
Check out the proper attic section required.
http://servicesales.com/metal-fab/shields.html
Hope this helps.
Marcel 
But what if the chase is open to the lower level? You have a whole chase full of blown insulation in there because there is no firestop between ceiling and attic. Get the large wet-dry vacuum out I guess.
Shawn
Take the time to write this one up.This is definetly a defect and you can’t solve it by moving the insulation away.
I would suggest an ‘INSULATED ATTIC RADIATION SHIELD’ remember that you have to maintain 2" safety clearance from surrounding combustible material.
Mario