The present invention provides an improved method and apparatus for regulating state variable estimators used in a hybrid active damping system for a vehicle powertrain. The state estimator provides variable estimates for operating states, such as real-time torque values of axles and dampers, that are not readily measurable with production powertrain and driveline hardware. This facilitates implementation of other control algorithms, such as torque oscillation damping control schemes which use multivariable feedback. The apparatus and method monitors the operating mode of the powertrain, and resets the state estimator for the hybrid active damping ring (HADR) under predetermined operating conditions. For instance, the state estimator includes an array of current state and predicted state variables that are set equal to corresponding reference values or measured values if the powertrain enters into four-wheel drive low (4WDLO).