Eighteen months after Virginia state Sen. John H. Chichester's Fredericksburg insurance agency was fined for violating a state insurance licensing law, Chichester successfully sponsored legislation that would restrict the state insurance regulatory agency in the imposition of fines for similar actions in the future.

Chichester, now the Republican candidate for lieutenant governor, defended his actions in an interview, saying the law under which his firm was fined "was absolutely silly. Laws are designed to help. This one clearly helped no one."

Chichester said his bill gave the independent agent "the competitive tool he needed to help the business." He said that he sees no conflict between serving as an insurance agent and introducing and voting on legislation that would help agents such as himself.

In 1982 Chichester admitted to the State Corporation Commission that his company, Chichester Inc., violated an insurance law when an employe of his sought to sell an insurance policy from an insurance company that she was not licensed to represent. Chichester Inc., which the candidate continues to head, paid a fine of $250.

Chichester said his company clearly violated the licensing regulation. "It was wrong," he said. "Obviously there was nothing to do but pay the fine." Chichester said the legislation that he sponsored and the 1984 General Assembly approved, which relaxed the state licensing procedures, "had nothing to do with that little incident."

The bill stripped the corporation commission of some of its authority, revising the section of the law that Chichester's company had violated.

The changes effectively prevent state officials from fining independent agents for similiar violations.

Virginia Republicans have been especially concerned about conflict-of-interest questions because of the state's Nov. 5 elections. Party leaders have said that similiar charges against state Sen. Nathan H. Miller, the GOP's nominee for lieutenant governor four years ago, were factors in the Democratic sweep of the state's top three offices.

Wyatt B. Durrette, the Republican nominee for governor, has said the party was so fearful of a repeat of the 1981 controversy around Miller and legislation that benefited clients of Miller's law firm that Durrette met with the other Republican candidates for state office before the nominating convention in the spring.

"We said, everybody, go back and think through their lives and think through all their legislation and everything they were doing, and is there a possibility that there is something back there," Durrette said in an interview this summer. "And all of us had done that and we all said, 'No, there isn't.' "

Asked yesterday whether he knew of or had discussed the issue with Chichester, Durrette said: "It was new to me, and I don't think it is of any significance at all . . . . Any relationship to any kind of improper conduct was simply nonexistent.

"I cannot for the life of me see what is improper about a legislator changing a law that obviously needed changing so someone would not be inadvertently caught in the kind of situation he had been in two years earlier."

While other candidates in this year's races have had questions raised about votes they took while in the General Assembly, Chichester is the first known to have sponsored a measure that directly affected his or her business. The Norfolk Virginian-Pilot and Ledger-Star reported recently that state Del. W.R. (Buster) O'Brien of Virginia Beach, the GOP candidate for state attorney general, held stock in a cellular telephone company and voted for legislation affecting the companies. O'Brien said his holdings did not place him in a conflict because none of his votes directly affected his company.

State Del. Mary Sue Terry of Patrick County, O'Brien's Democratic opponent, holds bank stock, sits on a bank board and has voted on banking measures. She, too, says that the issues she has voted on have not directly affected her bank, located in Southside Virginia.

Under the law that Chichester sponsored, independent agents may sell policies for any company and then take up to 60 days to secure a state license for the sale. When Chichester's company was fined, the law required the agent to obtain a license before transacting any business with a company.

"I was helping the consumer, the insurance companies and the people I represent," Chichester said in a telephone interview. His law allows agents to offer many policies and reduces their paper work, he says.

Some of Chichester's colleagues in the Senate in 1984 privately questioned his introduction of the insurance measure, according to state Sen. Clive L. Duval (D-Fairfax). " . . . Several of us felt that John was in a conflict-of-interest situation in presenting the bill to the committee," DuVal said, adding that no senators then publicly questioned Chichester on his introduction of the bill. To question another legislator's ethics in public would be considered a breach of protocol in the Senate, where each member is allowed to be the judge of when his or her conduct might pose a conflict.

The Senate's Rule 36 bars members from voting on any matters in which they have an "immediate, private or personal interest." The rule has been interpreted broadly and has been a subject of much controversy among state officials.

Chichester became a subject of one controversy in 1980 when he abstained from voting on the U.S. Equal Rights Amendent, effectively killing the measure's chances of passage in Virginia. At the time, Chichester told his colleagues that he had "a personal interest" in serving his constituents and thought that they could best be served "by not voting at all."

Chichester, 48, who has served in the state Senate six years, said in the interview about the insurance measure that it was "only in my wildest dreams -- and I couldn't even come up with it then -- that anybody could construe this was a conflict."

Chichester said that before the law he sponsored went into effect, the state's insurance bureau "would take in the neighborhood of 60 days" to issue a license to an agent to enable him or her to sell for a particular insurance carrier. "By that time, somebody else had come along and taken" the insurance business the agent was soliciting.

"We were not thrilled with the bill," said Stephen Kaufmann, deputy commissioner of regulatory policy for the state Bureau of Insurance. "There are a lot of abuses going on. We'd like to know who represents who."

Kaufmann said Chichester's initial bill would have given agents even more flexibility and would have taken more licensing authority from the commission. He said the version that was signed into law was a compromise between the insurance industry and the commission, a compromise that the agency was not eager to enter.

Chichester Inc. was cited by the commission for "acting as an agent of a certain insurance company without procuring from the commission a license so to do," according to documents on file in Richmond. According to Chichester, "We had a girl not licensed with a company who signed an application with that company. When that application was audited, it was found she was not licensed."

He said the employe made an honest mistake, but "I'm responsible for my employes." CAPTION: Picture, John H. Chichester . . . company was fined $250.