Thirty-one years ago today, the manufacturer of an asbesto-containing insulating material called Kaylo learned that it could cause asbestosis, an often fatal lung disease.

"It is better to discover it now in aminals rather that later in industrial workers," Dr. Arthur J. Vorwald, director of the industry-financed Saranac Laboratory, said in a letter to the late U. E. Bowes of Owens-Illinois Glass Co. in Toledo.

"Thus the company, being forewarned, will be in a better position to institute adequate control measures for safeguarding exposed employes and protecting its own interests," Vorwals wrote. To document the warning, he enclosed a report on a research project showing that Kaylo "should be handled industrially as a hazardous dust."

In 1952, however, the material was pronounced "non-toxic" by the Kaylo Division research chief, E. C. Shuman. Its development by Owens-Illinois is "an inspiring example of the American way," he wrote in a petroleum-industry magazine.

And until 1972, when -- 24 years after Vorwald's report -- Kaylo was reformulated to eliminate asbestos, the product was sold without warning to workers and installers that it could causes asbestosis. The reformulation was done by another Toledo firm, Owens-Corning Fiberglas Corp., which became the principal sales agent for Kaylo in 1953 and bought the business outright in 1958.

In a statement yesterday, Ownes-Illinois said that it doesn't know if its Kaylo workers were told of Vorwald's warning but that they were aware that the dust was "potentially hazardous." It also said that during the decade when it made Kaylo, it believed the workers "were not at risk," and that installers "exposed to less dust, certainly were not. . ."

The Kaylo story has been emerging piecemeal as a result of pretrial proceedings in a large number of product-liability damage suits brought be workers who accuse the asbestos industry of a longterm cover-up of health hazards.

Some key Kaylo documents discovered in the proceedings were disclosed last May by Rep. George Miller (D-Calif.). Others were introduced yesterday by Barry I. Castleman, an environmental consultant, at a hearing of the House Judiciary subcommittee on crime. "It was never "the American way' to sell death in Kaylo boxes and call the stuff non-toxic," he tesified.

The hearing was the first of a series on a bill to impose criminal penalties on employers who conceal known hazards from employes and the general public. Miller introduced the bill last summer. It has 44 co-sponsors, including subcommittee chairman John Conyers (D-Mich.).

Some of the documents show that Owens-Corning executives once considered exploiting the hazards of asbestos as a device to increase sales of their rival product, Fiberglas. That material was disliked by many installers -- members of the International Union of Asbestos Workers -- who said it irritated their skin. They demanded extra pay for handling it.

In January 1942 -- 11 years before Owens-Corning became the primary sales agent for asbestos-containing Kaylo -- an executive named Edward C. Ames suggested a two-pronged "stragety": dramatically demonstrating Fiberglas' safety by seeking insurance for union members handling it, and gathering, "as a weapon-in-reserve," a 500- or 600-page file of photostats of medical literature on asbestosis.

If union leaders react unfavorably to the insurance idea, then "use the asbestosis weapon-in-reserve to let them stew," Ames wrote. Ackowledging an implied 'threat" to distribute a government public-health bulletin on asbestosis to each union member, he said the plan "may provide an opportunity to promote dissention in the ranks that could bring about overthrow of the present union leadership."

Owens-Corning did not adopt the strategy. "We were never told of any of the dangers back then," Roy J. Steinfurth, a union health official, told a reporter yesterday. The company was asked for comment Wednesday but said it would have none until today.

At the hearing, witness Castleman produced a letter in which an Owens-Illinois executive wrote Saranac Laboratory's Vorwald "that our Kaylo Division wants to gather together in brochure form material on the health aspects of Kaylo dust, and wants to consider the possibility of publishing some of your experimental findings." The letter was dated Dec. 12, 1950 -- more than two decades after Vorwald's warning. No brochure was issued.

Owens-Illinois continued to sponsor testing of Kaylo at Saranac, which gave the company a second warning report in 1954.

Yesterday, Owens-Illinois said it had encouraged publication of a 1955 article, "widely disseminated in the medical and scientific communities," reporting that lung changes typical of asbestosis had developed in test animals exposed for long periods to excessively high concentrations of dust from asbetos-containing products.

The Saranac Laboratory, in Saranac Lake, N.Y., was the nation's leading research center for lung disease during the 1940s and early 1950s. Laboratory officials said in interviews this year that it was formerly policy not to make public the findings of its industry-funded research without permission of the corporate sponsor.