Cable Fault Damage and NEC 110.10

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I have a 480V panel with 40kA fault current available. I have several 20A circuit breakers in this panel with #12 wire going to my loads. An electrical inspector has informed me that according to NEC 110.10, my wire is not protected against a fault. His reasoning is that a fault could occur on the load side of the 20A breaker and the 20A breaker (open time of 1 cycle) will let through enough fault current to damage the insulation on the wire. I have seen the fault current ratings of insulated wire and they are low (#12 is rated for 2768A for 1 cycle). I have had a circuit breaker manufacturer's representative tell me that since the circuit breaker is UL 489 listed that the wire will not be damaged. Has anyone dealt with this issue before?
 
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