The Maryland Court of Special Appeals has refused to order an inquiry into allegations that State Farm Mutual Auto Insurance Co. may have privately helped Maryland's insurance regulatory agency draft an order giving State Farm a $10 million rate increase in 1981.

In a 16-page opinion issued Jan. 6, the court declined to intervene in any aspect of the rate-increase decision by the Maryland Insurance Division, noting that grounds for judicial intervention are limited and "we do not have appellate jurisdiction at this time."

The rate increase, which affects State Farm's 450,000 policyholders in Maryland, has already gone into effect.

The allegation of possible improper action came to light last November when attorneys for two State Farm policyholders appealing the rate increase filed a letter with the appeals court from assistant state attorney general Francis X. Pugh that said a State Farm lawyer "may have edited or otherwise participated in drafting the final order approving the 1981 rate increase. "

If true, these allegations "would reflect a severe breakdown of proper administrative practice and would constitute a violation of fair procedure and fundamental due process . . . " said attorneys Ron M. Landsman and David R. Straus in papers filed with the court.

Landsman and Straus asked the appellate court to send the case back to the Baltimore City Court and order the city court to inquire into all procedural matters surrounding the case, "including whether and to what extent there were ex parte unilateral communications between the insurance division and State Farm.

The appeals court, however, refused, saying it can intervene in state regulatory matters only in limited circumstances, and a reviewing court "should be loath to substitute its judgment for the result reached by an administrative agency."

It noted that "if there has been any improper action on the part of an employe of the insurance commissioner or any impropriety by a representative of State Farm, there are several avenues available to the insurance commissioner to remedy these indiscretions."

In fact, Acting Insurance Commissioner Edward J. Muhl conducted an investigation of the State Farm allegations and said he "found nothing to suggest that ex parte conversations took place."

Landsman said this week that he is considering taking the Special Appeals Court ruling to the Maryland Court of Appeals, the highest court in the state.