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This paper deals with the evaluation of the reliability of a dynamic hierarchical system. Reliability of the system is calculated precisely by incorporating modular imperfect coverage model for both static and dynamic subsystems. Modular imperfect coverage model is analyzed in detail using formal methods to debug the specification errors and remove any ambiguity. A modular and hierarchical decomposition method that combines Markov Analysis and a separable binary decision diagrams based combinatorial method is applied to the reliability analysis of dynamic hierarchical systems subject to modular imperfect coverage. We illustrate our approach by analyzing an example hierarchical computer system.