Can a natural gas water heater crack, rust, or be damaged by wrapping insulation around it?

I was told by someone that the insulation around the water heater caused it to sweat and rust at the bottom. This is the reason why the water heater is leaking. Any information would be very grateful. I am having an arguement with the company who came and insulated my home. This company wrapped the water heater saying it would help. The water heater is about 13 years old and still looks brand new except for the rusting that is now on the bottom which wasn't there before the insulation. Thanks for any help!!