I think the reason no-one offered any advice was that this is an unusual request - most people would just pull the pipe out and seal the stub where it passes through the roof and then either take away and make good, or weather the existing flue outlet.
Without seeing the building; -
The proposed pipe insulation needs to be in line with the existing insulation to prevent cold bridges.
Ideally the pipe should be removed, but at least seal both ends with air tight and weather proof seals.
Leaving the flue open above could allow rain in, depending on the stype of flue.
Leaving a flue full of insulation could cause problems for future owners.
What happens if they decide to use it
ONQ
All advice on AAM is remote from the situation and cannot be relied upon as a defence or support - in and of itself - should legal action be taken.
Competent legal and building professionals should be asked to advise in Real Life with rights to inspect and issue reports on the matters at hand.