ANNAPOLIS, JUNE 29 -- State Insurance Commissioner Edward J. Muhl announced approval today of a 24 percent rate increase in medical malpractice insurance premiums, a rise substantially smaller than was sought by Medical Mutual Liability Insurance Society of Maryland, the state's leading malpractice insurer.

In making the announcement at a State House news conference, Muhl said he was prepared last week to reject Medical Mutual's rate increase request of 32.7 percent, but after discussions between state officials and the company, Medical Mutual agreed to the lower request.

State government sources said Maryland officials believed that Medical Mutual, which insures 85 percent of the state's doctors, built into the original request the expected cost of expanding into other lines of insurance, and that the initial proposal would have been turned down for that reason.

Medical Mutual has maintained that its premiums have been escalating merely to keep pace with payout losses. Company President John Spinella, who attended today's news conference, said afterward that although the company intends to expand into other lines of insurance, expansion costs were not built into its original rate increase request.

The company also agreed to significantly modify its highly controversial plan to charge obstetricians on a per delivery basis. That plan came under sharp criticism from rural obstetricians who said they have heavy caseloads of patients who often cannot afford to pay their medical bills.

Under the rate filing approved today, the average obstetrician would pay a base insurance rate of $32,000, plus a new charge of $90 for each baby delivered. The average obstetrician, according to Medical Mutual, delivers about 100 babies a year; those with active practices would not be charged the additional $90 after they had delivered 140 babies.

Obstetricians pay higher premiums than any other doctors in the state, and surveys have shown that the premium costs are driving many doctors out of the field. Currently, according to Muhl, an obstetrician who delivers 130 to 139 babies a year pays $38,600 in malpractice insurance premiums. Under the rate increase formula approved today, the premium would rise to $55,413. Medical Mutual's original request, which called for substantially higher per-delivery charges, would have raised the cost to $77,688.

Medical Mutual received a 50 percent rate increase last year, immediately after the legislature enacted changes in liability laws that the insurer said would help hold rates down. Nevertheless, at Gov. William Donald Schaefer's request and to curb malpractice premiums, the legislature again changed liability laws this year, including allowing judges to reduce damage awards made by juries in medical malpractice cases.

Lt. Gov. Melvin A. Steinberg, who, along with representatives of the state medical society, attended the news conference, praised the compromise effort between state officials and Medical Mutual. Dr. Reynaldo Lee-Llacer of the medical society said he was grateful to the governor's office for its "tremendous effort" in bringing the two sides together.

Muhl termed the 24 percent increase "very balanced."

After the news conference, Spinella, describing his discussions with state officials, said Muhl had assured him that he would try to get the legislature next year to allow Medical Mutual to put less of the money it receives in premiums into a reserve fund for future losses. Muhl opposed such legislation for two years, contending the company could come up short, but he recently changed his position.

If the legislature does not agree to permit the practice, Spinella said, rates will rise commensurately next year.

The rate increases approved today go into effect beginning tomorrow as doctors' policies come up for renewal.