I wonder if the Insteon gets confused with the non-synchronous switching. I'm sure your Onan isn't phase locked to the utility and maybe the ATS switches to emergency so fast that the power loss isn't seen by the Insteon. Do you do your test with a "Test Transfer" switch or by interrupting the Normal source? If everything critical is backed up with UPS, I would try that. We know that in the real world case, the Insteon will have a few seconds of outage and a "Power On Reset" after the genset spins up and the ATS throws over to Emergency.
Joe
