A Maryland insurance company is facing millions of dollars in losses caused by the fall of the nation's largest independent marketer of extended service warranties for new cars and trucks.

With the demise last week of General Group International, a California company that sold the warranties through car dealerships nationwide, Baltimore-based Maryland Casualty Insurance Co. may have a potential liability of at least $200 million.

Maryland Casualty underwrote an estimated 1.7 million of those auto warranty policies, many of which are designed to provide bumper-to-bumper coverage for vehicle problems that occur after the expiration of the original manufacturers' warranties.

Maryland casualty said it will honor all General contracts already approved and has hired half of General's 280-person staff to administer the agreements. The other General employees were laid off.

But the cost of administering General's contracts and settling any claims brought under those agreements "all point to red ink," said George Cass, Maryland Casualty's executive vice president.

How much Maryland Casualty stands to lose depends on how many of those 1.7 million policyholders actually file claims between now and the time most of the policies expire in 1997. It also depends on how many owners sell their cars before their coverage ends, since the policies are not transferable.

"Everything we look at from an actuarial standpoint says that the red ink will be substantial," said Cass.

Cass also said that some cars covered under the agreements will not require any extraordinary service during the lives of the extended service contracts; others will be made ineligible for coverage because they will either be destroyed or otherwise damaged in crashes.

Vehicle warranties generally do not cover damage caused by accidents or owner abuse.

Independent companies account for about 45 percent of the nearly $4 billion annually generated by sales of extended auto-warranty agreements, according to figures compiled by Automotive News, a Detroit-based industry trade journal. The other 65 percent are written and backed by the automakers themselves.

General is the 16th independent auto warranty company to die within the last three years -- the victim of a worsening economy that has made new-car buyers wary of adding extras, such as vehicle undercoatings and extended warranties. Typically, an extended warranty costs from $400 to $600.

"We're getting out of this business," after the last contract is serviced in 1997, Cass said. "Extended warranties are a part of the property and casualty insurance industry that just never performed well."

Some local car dealers blamed some of the problems with independent warranty companies on poor service provided by those firms and said similar programs backed by the automakers are better.

"The extended warranties are good for the customer and good for the dealer," said Pierre D. Eicher, vice president of Steve Smith Pontiac in Fairfax. The warranties give customers peace of mind and valuable service and help dealers increase their profit on new-car sales, Eicher said.

However, according to Gerard Murphy, executive director of the Automotive Trade Association of the National Capital Area, some strong independent writers of extended warranties, such as those backed by General Electric Corp., exist.

"This is not happy news about General Group International," Murphy said. "But it shouldn't be a problem for consumers. One way or the other, there's always going to be somebody to step up and back these agreements."