I've installed hundreds of fireplaces over the years. Many of them were retrofitted into existing chases and bump-outs. I can't begin to tell you how many chases and bump outs that were uninsulated. Many were insulated only up to the face of the fireplace, leaving the entire area of the fireplace and the chase uninsulated.
The first jurisdiction I worked for had that going on in their new construction. When I started writing the corrections, it was flying in the face of the senior inspector, who didn't understand what the issue was.
After "proving myself" during a staff meeting, I was able to continue plumbing up the contractors in this area. It is a common thing (I guess). I'm sure there are alot of these out there.
Obviously, there is more than that going on in your case. I can't believe the house is still standing.
Again, in the first jurisdiction I worked for...a homeowner had a new fireplace installed without a permit. The first time he used it (around Christmas time) the 2 story chase caught fire. No fireblocking or firestop at the mid floor line. I don't know what actually caused the fire, but it turned into a total gut and redo.