In a new case called Syers Properties III, Inc. v. Ann Rankin, et al., the Court of Appeal held that a prevailing party that is entitled to recover attorneys' fees may seek an award of "reasonable" attorneys' fees even if it exceeds the hourly rate actually paid by the client.

In the case, the plaintiff sued its former attorneys for legal malpractice.  The retainer agreement between the plaintiff client and defendant law firm contained a provision entitling the prevailing party in an action to an award of attorneys' fees.  After the defendants prevailed at trial, they sought attorneys' fees.

The defendants requested fees based on the "prevailing rate or market rate" in the San Francisco Bay Area, where the case was venued, but did not disclose to the court what the defendants' attorneys were actually paid.  The trial court awarded the defendants over $843,000 in attorneys' fees.

The plaintiff appealed, arguing that the proper measure of the fee award should be the amount of fees actually incurred, not the market rate or "reasonable" rate.  The Court of Appeal rejected the argument and affirmed the fee award, finding, "There is no requirement that the reasonable market rate mirror the actual rate billed."

This case is potentially significant to parties represented by counsel retained by insurance, as was the situation in Syers Properties.  In such instances, the hourly rate actually paid to counsel is often below the market rate.  Under this new precedent, if a party defended by insurance prevails at trial and is entitled to an award of attorneys' fees, counsel may seek fees that are "reasonable" or market rate in the community, even if that amount exceeds the rate actually paid by insurance.