The Escape uses an electronic, full-time, single speed transfer case. The shifter is a selector knob on the dashboard. It functions as FWD in normal mode giving power to the rear when the fronts slip or "on" giving x-amount of power to the rear tires. I highly doubt its locked though so on-road use would still be ok.
As far as registration/insurance goes, it would probably depend on which state that the hybrid was registered in and if the state found out about the mods.
