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The insurance company for Pacific Engineering and Production Co. has filed suit in Nevada federal court in an effort to drastically limit its liability in the fiery explosion last year that leveled the company's plant.

The earthquake-force blast claimed the lives of two company workers and caused an estimated $70 million in property damage in the Las Vegas Valley.The lawsuit filed Friday by Insurance Co. of the State of Pennsylvania named PEPCON, two successor corporations, nine corporate officers and a series of insurance companies that have sued in state court to recover losses.

If successful, the federal lawsuit could determine whether those cases, involving millions of dollars in damages, are settled.

The suit seeks a decision that one occurrence was involved in the disaster, which would limit Insurance Company of the State of Pennsylvania's liability to $1 million. It also seeks a $2 million cap on the company's total liability.

PEPCON purchased the insurance policy from the Pennsylvania company less than one month before the disaster.

Two of the largest lawsuits pending against PEPCON were filed by Aetna Casualty and Surety Co. and Southwest Gas Co. Both suits contend PEPCON was negligent in its storage and manufacturing of ammonium perchlorate at the plant in Henderson, Nev.

Company officials deny the charges. They say a natural gas line rupture was the cause of the May 4, 1988, explosion.

A report released recently by safety experts for the United Steelworkers' union concluded a faulty batch dryer is responsible for the events that caused the blast.

Ammonium perchlorate is a rocket fuel oxidizing agent vital to the nation's space and defense programs.

Pacific Engineering has moved out of Nevada and is building a new plant about 15 miles west of Cedar City, Utah. That facility is scheduled to begin production of ammonium perchlorate next month.