Honest Engineer

There are several issues here: the electrical inspector would have passed it because it meets the NEC, but the problems are with the building and fire codes.(different guys enforce different books) If the panel is existing to remain, typically building codes will allow you to you to leave as-is unless altered. Once you modify it, some or all will need to meet current code. Installing a recessed panel into a rated wall (through the drywall membrane) needs to meet IBC 713 (similar in most states) which only allows steel boxes up to 100 sq.in. per 100 SF. We have not been able to find any panels with fire rated listing (which is where we ran across this thread). Options to maintain the wall assembly rating appear to be drywall recess for box, false wall, putty packs, or endothermic mat. - drywalled recess is questionable since it is no longer per the wall listing - false wall will work, but could get expensive and/or unattractive with offsets so architect will probably reject. - we will probably just specify thin intumescent sheet behind the panel with putty packs around the panel sides since they fit around branch circuits better. Regarding the fire AHJ, I would take them seriously. Most fire codes mesh with the building codes and have similar language. Most jurisdictions also have the fire AHJ plan review and inspection as part of the permit process. Additionally, if you do somehow get it past them and they do not like the installation, they can drive the owner nuts with petty nuisance violations over the life of the building after you and the building AHJ have moved on. (not saying they will, but they can) Hope this helps. Good luck.