On November 25, Year 1, an explosion occurred at a Rex Co. plant causing extensive property damage to area buildings. By March 10, Year 2, claims had been asserted against Rex. Rex's management and counsel concluded that it is probable Rex will be responsible for damages, and that $3,500,000 would be a reasonable estimate of its liability. Rex's $10,000,000 comprehensive public liability policy has a $500,000 deductible clause.