I don't disagree with your middle paragraph....
My suggestion to the OP was to run it by the EOR. If the pluses outweigh the minuses the EOR may allow insulation before the hydro. We don't know what the OP's specifications state in regards to his hydrostatic test.
I have, as a contractor, installed several underground systems (many on military projects for the USACE) and the specs may dictate that all joints remain uninsulated and not backfilled until a successful hydro has been achieved. This allows someone to visually inspect each joint if they feel like it or if its not too hot or cold or raining. A mile down the road on different project, with the pipes coming from the same boiler or chiller at the central energy plant, the specs may state that the pipes shall be backfilled before hydro, usually on gaskeded PVC joints to prevent movement. Other specs do not address the issue directly. MANY specs are just recycled from previous similar projects.
We have ran HDPE gas lines where line
must be partially backfilled before pressure test per the specs.
Is it better to test a chill water PVC system before you backfill or after? You must have some backfill to test but if you test first and then backfill you may damage the pipes during the backfill and compaction. I think it is better to test
after insulation and backfill. You are testing the finished product. The CHW product is usually 40F and 70PSI so not too dangerous. Hot water is always steel and welded joints on these projects and vary in temp and pressure but still not close to the dangerous super heated steam line that you mentioned and I agree with your warning on those lines.
There are systems that are way to critical to insulate or cover before the pressure test but that isn't always the case. IMHO it is a good idea to discuss it with the EOR to determine the best means and methods to achieve the best product for the customer in regards to hydro.
Not all contractors are looking to cut corners to save a buck or two. I know lots of them do but I don't want to get a call 11 months and 29 days after acceptance of completed project and hear "You need to come and fix a leak in your pipes...under the four lane highway."