Citing what it called a "willful disregard for health and safety," the Labor Department yesterday fined Union Carbide Corp. a record $1,377,700 for 221 alleged safety violations at the company's Institute, W.Va., plant and gave its files to the Justice Department for possible criminal prosecution.

Investigators for the department's Occupational Safety and Health Administration (OSHA) charge that Carbide used some plant workers as human "canaries" to detect deadly phosgene gas by sniffing the air without respirators.

OSHA also charged that Carbide:

*"Intentionally" underreported the number of workers' injuries at the plant, an action that agency officials described as a possible violation of federal criminal law.

*Maintained "defective" safety equipment that increased the threat of fires and explosions and workers' exposure to toxic chemicals.

*Failed to install monitoring devices to detect leaks of chlorine, carbon monoxide and other dangerous chemicals at the plant.

The fines, by far the stiffest imposed by OSHA, resulted from a "wall-to-wall" investigation of the plant after a toxic cloud of aldicarb oxide leaked from the facility Aug. 11 and sent more than 130 people to hospitals.

Labor Secretary William E. Brock said the findings show a "laissez-faire attitude" toward worker safety that has spurred OSHA to conduct more intensive investigations at other toxic chemical plants across the country. But he said the Institute plant "appears to be far worse than others."

"We just were surprised to find conscious, overt, willful violations on such a widespread basis," Brock said. "I can't say there are not other people [in the chemical industry] playing the same kind of games. I can say we are aggressively trying to find out."

In a statement from Carbide's Danbury, Conn., headquarters, company President Robert D. Kennedy said OSHA has "grossly distorted" safety conditions at the plant and that the company will vigorously contest the allegations.

"Most of the alleged violations involved paper work, not chemical process safety, operating integrity or employe safety," Kennedy said. ". . . Furthermore, the allegation of complacency with respect to safety is an outrageous misrepresentation of the truth."

Carbide has 15 days to file an appeal, which would go first to an administrative law judge, then to a three-member OSHA review commission and, if necessary, to a federal appeals court.

The plant, west of the state capital of Charleston, has been a focus of national controversy since the Dec. 2, 1984, disaster in Bhopal, India, in which a leak of methyl isocyanate (MIC) from a Carbide plant killed more than 2,000 people and injured thousands more.

The Institute plant, designed identically to the Bhopal unit, was the only U.S. facility producing MIC.

Brock and OSHA officials stressed that the violations cited yesterday did not involve the MIC or aldicarb units, which were the subject of earlier probes by the agency. An investigation of the aldicarb unit led OSHA last fall to fine Carbide $32,100 -- a figure that Carbide lawyers have negotiated down to $4,400.

OSHA officials said the new investigation involved five other units at the plant and resulted in more damaging findings, including 130 "willful" violations of federal safety standards and 72 more termed "serious."

OSHA assessed the company $10,000 for each "willful" violation and $1,000 for each "serious" one as well as a total of $5,700 for 19 other violations. The highest fine imposed previously by OSHA was $786,190 against Newport News Shipbuilding and Drydock Co. in 1979. It was reduced to $96,580.

The most alarming finding against Carbide, according to OSHA officials, was its practice of designating one worker on each shift in its phosgene unit to serve as the "sniffer" in the event of a gas leak. If alarms indicating a phosgene leak went off, the sniffer, known as the outside operator, was dispatched by supervisors on a floor below to find the leak by sniffing for it.

"They used to use canaries for that," Brock said.

"Our team out there actually nicknamed these guys 'the canaries,' " added John Miles, director of OSHA's field operations. "We think it's terrible. The thing about phosgene is it's pretty potent stuff, one whiff of it and it will kill you . . . . But this was clearly presented to us as something that was continuous and routine, that it was something they had always done."

Phosgene, called mustard gas when used as a weapon during World War I, is used at the Institute plant as a basic ingredient in MIC production. Miles said a review of records showed 15 reported leaks of phosgene between August 1984 and July 1985 but no reported injuries.

Asked about the use of outside operators to sniff for phosgene leaks, Carbide spokesman Ed Van Den Ameele said, "This is not our practice . . . . That's all I can tell you at this point." He said the company will have a more detailed response today.

OSHA officials said they had given the files from the probe to the Justice Department's criminal division. Because none of the violations involves death, the only basis for possible criminal charges would be the filing of any false statements. That statute has never been invoked in an OSHA-related case.

OSHA charges that from 1983 to 1985, Carbide "intentionally" filed improper reports to OSHA that omitted 128 injuries to workers at the Institute plant. Those injuries include hurt backs, hernias, lacerations, contusions, fractures and chemical inhalations. These injuries, which resulted in seven lost work days and 66 instances of workers being placed on restricted activity, are required to be recorded and submitted to OSHA.