On January $17,$ year $<$ an explosion occurred at a sims Co$.$ plant causing extensive property damage to area buildings. Although noclaims had yet been asserted against Sims by March $10,$ year $2,$ Sims' management and counsel concluded that it is likely that claims will be asserted and that it is reasonably possible Sims will be responsible for damages. Sims' management believed that $$1,250,000$ would be a reasonable estimate of its liability. Sims' $$5,000,000$ comprehensive public liability policy has a $$250,000$ deductible clause.In Sims' December $31,$ year $1$ financial statements, which were issued on March $25,$ year $2,$ how should this item be reported?