diff --git a/README.md b/README.md
index 09ea678e..3ccc9b51 100644
--- a/README.md
+++ b/README.md
@@ -17,6 +17,7 @@ This tool implements an ACP agent by using the official [Claude Agent SDK](https
 - Custom [Slash commands](https://docs.anthropic.com/en/docs/claude-code/slash-commands)
 - Client MCP servers
 - Session-scoped long-running goals through the provider-neutral [goal extension](docs/goal-extension.md)
+- Structured errors, recovery, and warnings through the opt-in [session failure extension](docs/session-failure-extension.md)
 
 Learn more about the [Agent Client Protocol](https://agentclientprotocol.com/).
 
diff --git a/docs/session-failure-extension.md b/docs/session-failure-extension.md
new file mode 100644
index 00000000..cc1446dd
--- /dev/null
+++ b/docs/session-failure-extension.md
@@ -0,0 +1,208 @@
+# Session failure extension
+
+This document defines the provider-neutral experimental `sessionFailure` extension implemented by
+`claude-agent-acp`. Warnings and errors are durable transcript entries shown in order beside user,
+agent, and tool messages. They are not assistant-authored text and not ephemeral chat banners.
+
+## Capability negotiation
+
+The extension is opt-in. A client advertises it in `initialize`:
+
+```json
+{
+  "clientCapabilities": {
+    "_meta": {
+      "jetbrains": {
+        "air": {
+          "version": 1,
+          "capabilities": ["sessionFailure"]
+        }
+      }
+    }
+  }
+}
+```
+
+The adapter enables the extension only when `version` is a finite integer greater than or equal to
+`1` and `capabilities` contains `sessionFailure`. Otherwise it preserves the legacy ACP behavior.
+
+## Wire record
+
+The record is placed under `_meta.jetbrains.air.sessionFailure`:
+
+```json
+{
+  "_meta": {
+    "jetbrains": {
+      "air": {
+        "version": 1,
+        "sessionFailure": {
+          "id": "prompt-uuid:error",
+          "revision": 1,
+          "category": "limit",
+          "severity": "error",
+          "title": "You've hit your individual spend limit · run /usage-credits to ask your admin for a higher limit",
+          "actions": []
+        }
+      }
+    }
+  }
+}
+```
+
+| Field      | Required | Type                 | Meaning                                                                 |
+| ---------- | -------: | -------------------- | ----------------------------------------------------------------------- |
+| `id`       |      yes | non-empty string     | Stable identity of one logical incident.                                |
+| `revision` |      yes | positive integer     | Monotonically increasing version of that incident.                      |
+| `category` |      yes | category enum        | Broad machine-readable visual group.                                    |
+| `severity` |      yes | `warning` or `error` | Inline warning or error presentation.                                   |
+| `title`    |      yes | string               | Complete normal user-facing presentation.                               |
+| `details`  |       no | string               | Long explanation used only when required text is too large for `title`. |
+| `actions`  |      yes | ordered string array | Recovery actions recommended by the adapter.                            |
+
+There are no `phase`, `source`, `safeMessage`, `retryable`, `retryAfterMs`, `turnId`, retry-counter,
+or provider-code fields. Retry progress belongs in `title` when Claude supplies it. Transcript order
+and persistence time come from the receiving ACP event.
+
+## Identity, revisions, and history
+
+`id` identifies one occurrence, not an error type.
+
+- The first record for an incident creates one transcript entry at the current stream position.
+- The same `id` with a higher `revision` updates that entry in place without moving it.
+- The same or a lower revision is idempotently ignored by the client.
+- A later independent occurrence uses a new `id`, even when its category and text are identical.
+- Consecutive updates for the same notice may reuse one id and increment its revision.
+- Different ids are never deduplicated by comparing title or category.
+
+Live turn failures use `<turnId>:error`. Session-scoped incidents use an adapter-session epoch plus an
+incident sequence. Notices have their own `:notice:` namespace. Replayed usage-limit failures recover
+the persisted user-message UUID used as the live turn id, so the same occurrence keeps the same id.
+Malformed history without a preceding user message falls back to
+`<sessionId>:history-error:<messageUuid>`.
+
+Resolved records remain in transcript history. Recovery removes only the adapter's internal active
+state; it does not publish a clear tombstone and does not delete or rewrite the historical entry. A
+producer may publish a higher revision only when it has a real new user-facing status to show.
+
+## Delivery surfaces
+
+A turn-terminal failure is attached to the successful ACP `PromptResponse` in `_meta`; the response
+uses `stopReason: end_turn`. Session-scoped, replay-restored, warning, and background incidents use a
+`session_info_update`. The schema is identical on both carriers.
+
+A warning does not end a turn. An error record does not independently invent ACP lifecycle state;
+the prompt response or transport lifecycle remains authoritative. If no capable client negotiated
+the extension, existing JSON-RPC errors and transcript text remain unchanged.
+
+## Categories
+
+Categories are deliberately broad and drive only iconography and generic accessibility labels.
+
+| Category     | Covers                                                                |
+| ------------ | --------------------------------------------------------------------- |
+| `connection` | Lost transport, stopped or shutting-down worker, unavailable runtime. |
+| `access`     | Authentication required, rejected credentials, denied access.         |
+| `limit`      | Rate, quota, token, context, turn, or configured budget limit.        |
+| `request`    | Invalid input, unsupported model or operation, rejected request.      |
+| `service`    | Provider overload, provider failure, adapter/internal failure.        |
+| `unknown`    | A warning or failure that does not fit another group.                 |
+
+Claude SDK conditions map to these groups:
+
+| Claude condition                                                                         | Category                           |
+| ---------------------------------------------------------------------------------------- | ---------------------------------- |
+| `authentication_failed`, `oauth_org_not_allowed`, synthetic login message                | `access`                           |
+| `billing_error`, `rate_limit`, `max_output_tokens`, usage/spend limit, budget/turn limit | `limit`                            |
+| `invalid_request`, `model_not_found`                                                     | `request`                          |
+| `overloaded`, `server_error`, unknown provider error, adapter internal error             | `service`                          |
+| API retry without an HTTP response, query transport loss, worker shutdown                | `connection`                       |
+| model fallback notice                                                                    | `unknown` with `severity: warning` |
+
+Unknown SDK error kinds degrade to `service`; they never become success. Category does not determine
+message text or client behavior beyond presentation.
+
+## Severity
+
+- `warning` means the operation may still succeed and normally has no actions while recovery is in
+  progress. It does not terminate the turn. SDK `api_retry` progress reuses the active turn failure id;
+  a later terminal failure updates that record with a higher revision.
+- `error` means the operation cannot continue without user action or another request.
+
+Severity is always explicit.
+
+## Title and details
+
+`title` is the complete normal presentation: what happened, retry progress when present, and a short
+next step. The adapter must not replace a real Claude message with category-specific canned wording.
+
+For Claude SDK failures the title is copied from the user-facing text Claude already emitted:
+
+- top-level assistant error text, including synthetic usage-limit and login messages;
+- otherwise the terminal SDK result or error text;
+- the exact model-fallback notice for warning records.
+
+Adapter-authored fallback text is allowed only when no Claude user-facing message exists, such as a
+query iterator throwing, worker-shutdown EOF, or an internal missing-result invariant. Raw thrown
+exceptions, stack traces, transport URLs, tokens, headers, environment values, and private paths are
+never used as titles.
+
+`details` is reserved exclusively for required explanations too large to fit reasonably in `title`.
+If the complete message fits in `title`, `details` must be omitted. It is not a place for status text,
+retry counters, provider payloads, or diagnostics.
+
+## Actions
+
+Version 1 defines only:
+
+| Action        | Meaning                                            |
+| ------------- | -------------------------------------------------- |
+| `retry`       | Retry the operation associated with this incident. |
+| `login`       | Start authentication.                              |
+| `new_session` | Start a fresh agent session/runtime.               |
+
+The adapter supplies action ordering. The client filters actions it cannot safely execute and ignores
+unknown or duplicate values. The client must not infer actions from category.
+
+Current Claude policies are:
+
+- authentication: `login`;
+- provider overload/error and recoverable internal error: `retry`;
+- transport loss or worker shutdown: `new_session`;
+- context or configured session-budget exhaustion: `new_session`;
+- account quota and invalid request: no action.
+
+## Internal recovery
+
+Recovery policy is internal adapter state and is not serialized:
+
+- restored quota remains active until a real model answer;
+- authentication remains active until successful `auth_status`;
+- transport loss and worker shutdown remain active until runtime replacement;
+- other turn-scoped failures stop being active at a later confirmed attempt boundary;
+- notices are not cleared merely by generic success.
+
+Recovery never removes the transcript record. Publishing another incident is not evidence that an
+older one recovered.
+
+## History replay
+
+`session/load` scans top-level assistant history for SDK synthetic usage-limit messages. It recognizes
+only `<synthetic>` messages beginning with SDK-owned stable prefixes, not arbitrary model prose. Every
+recognized occurrence is replayed as a typed record at its original transcript position. The latest
+matching message stays active until a later real-model answer proves recovery; older and recovered
+records remain historical typed entries.
+
+For a capable client, replay suppresses duplicate assistant prose and restores typed errors using the
+exact stored Claude text as `title`. Legacy clients receive the original transcript and no typed record.
+
+## Verification
+
+The executable contract lives primarily in `src/tests/acp-agent.test.ts`, under `usage-limit failure
+replay`, `stop reason propagation`, and `model refusal fallback handling`.
+
+```sh
+npm run build
+npm run check
+npm run test:run
+```
diff --git a/src/acp-agent.ts b/src/acp-agent.ts
index c16625f2..fc2bd8d2 100644
--- a/src/acp-agent.ts
+++ b/src/acp-agent.ts
@@ -121,6 +121,20 @@ import {
   refusalFallbackToCreateRequest,
 } from "./elicitation.js";
 import { SettingsManager } from "./settings.js";
+import {
+  activeUsageLimitMessage,
+  airSessionFailureCapabilityMeta,
+  assistantMessageText,
+  type ClaudeFailureKind,
+  createSessionFailureState,
+  isSyntheticUsageLimitMessage,
+  type PublishedSessionFailure,
+  providerFailureCategory,
+  SessionFailureController,
+  type SessionFailureState,
+  sessionFailureMeta,
+  supportsAirSessionFailures,
+} from "./session-failure-extension.js";
 import {
   applyTaskCreate,
   applyTaskList,
@@ -147,6 +161,7 @@ export const CLAUDE_CONFIG_DIR =
 const execFileAsync = promisify(execFile);
 
 const MAX_TITLE_LENGTH = 256;
+const MAX_INLINE_FAILURE_TITLE_LENGTH = 256;
 
 function sanitizeTitle(text: string): string {
   // Replace newlines and collapse whitespace
@@ -709,6 +724,10 @@ type Session = {
    *  NOT READ YET — recorded now so the mapping exists if/when we wire up
    *  fork/rewind. */
   messageIdToUuid: Map<string, string>;
+  /** Durable-for-this-consumer failure state shared with session/load replay.
+   *  Keeping it on the Session lets replay seed a failure that the persistent
+   *  consumer can later clear with the same id and a higher revision. */
+  sessionFailureState: SessionFailureState;
 };
 
 /** Result-message origin kinds that mark an AUTONOMOUS cycle — work the
@@ -921,149 +940,11 @@ export type ToolUpdateMeta = {
 };
 
 const SUBAGENT_TRANSCRIPT_CAPABILITY = "subagent-transcript";
-// This is a protocol namespace, not user-facing branding: `jetbrains` owns the
-// non-standard contract and `air` identifies the client defining its rendering
-// semantics, without affecting unrelated JetBrains ACP clients.
-const JETBRAINS_META_KEY = "jetbrains";
-const AIR_META_KEY = "air";
-const AIR_EXTENSION_VERSION_KEY = "version";
-const AIR_EXTENSION_CAPABILITIES_KEY = "capabilities";
-const AIR_SESSION_FAILURE_KEY = "sessionFailure";
-const AIR_EXTENSION_VERSION = 1;
 
 function supportsSubagentTranscript(capabilities?: ClientCapabilities | null): boolean {
   return capabilities?._meta?.[SUBAGENT_TRANSCRIPT_CAPABILITY] === true;
 }
 
-type AirSessionFailureCategory =
-  | "advisory"
-  | "auth_required"
-  | "bad_request"
-  | "budget_exhausted"
-  | "context_exhausted"
-  | "internal_error"
-  | "overloaded"
-  | "provider_error"
-  | "quota_exhausted"
-  | "rate_limited"
-  | "transport_lost"
-  | "worker_shutdown";
-
-/**
- * How loudly the client renders a record. Absent on the wire means `error`, so a client that
- * predates warning support keeps treating everything it receives as a failure.
- */
-type AirSessionFailureSeverity = "error" | "warning";
-
-const AIR_FAILURE_PRESENTATION: Record<
-  AirSessionFailureCategory,
-  { message: string; retryable: boolean; actions: string[] }
-> = {
-  // A non-fatal notice whose wording comes from the adapter or the SDK, so this message is only the
-  // fallback for an advisory published without one.
-  advisory: {
-    message: "Claude reported a notice.",
-    retryable: false,
-    actions: [],
-  },
-  auth_required: {
-    message: "Sign in to continue using Claude.",
-    retryable: false,
-    actions: ["login"],
-  },
-  bad_request: {
-    message: "Claude could not process this request.",
-    retryable: false,
-    actions: ["new_turn"],
-  },
-  budget_exhausted: {
-    message: "This Claude session reached its configured budget.",
-    retryable: false,
-    actions: ["new_session"],
-  },
-  context_exhausted: {
-    message: "This Claude turn reached its configured limit.",
-    retryable: false,
-    actions: ["new_turn"],
-  },
-  internal_error: {
-    message: "Claude Agent encountered an internal error.",
-    retryable: true,
-    actions: ["retry"],
-  },
-  overloaded: {
-    message: "Claude is temporarily overloaded.",
-    retryable: true,
-    actions: ["retry"],
-  },
-  provider_error: {
-    message: "The model provider reported an error.",
-    retryable: true,
-    actions: ["retry"],
-  },
-  quota_exhausted: {
-    message: "The Claude account has no available quota.",
-    retryable: false,
-    actions: ["new_session"],
-  },
-  rate_limited: {
-    message: "Claude is temporarily rate limited.",
-    retryable: true,
-    actions: ["retry"],
-  },
-  transport_lost: {
-    message: "The connection to Claude was lost.",
-    retryable: false,
-    actions: ["new_session"],
-  },
-  worker_shutdown: {
-    message: "The Claude worker is shutting down.",
-    retryable: false,
-    actions: ["new_session"],
-  },
-};
-
-function supportsAirSessionFailures(capabilities?: ClientCapabilities): boolean {
-  const jetbrains = capabilities?._meta?.[JETBRAINS_META_KEY] as
-    Record<string, unknown> | undefined;
-  const air = jetbrains?.[AIR_META_KEY] as Record<string, unknown> | undefined;
-  const version = air?.[AIR_EXTENSION_VERSION_KEY];
-  const advertised = air?.[AIR_EXTENSION_CAPABILITIES_KEY];
-  return (
-    typeof version === "number" &&
-    Number.isFinite(version) &&
-    Number.isInteger(version) &&
-    version >= AIR_EXTENSION_VERSION &&
-    Array.isArray(advertised) &&
-    advertised.some((capability) => capability === AIR_SESSION_FAILURE_KEY)
-  );
-}
-
-function providerFailureCategory(errorKind?: SDKAssistantMessageError): AirSessionFailureCategory {
-  switch (errorKind) {
-    case "authentication_failed":
-    case "oauth_org_not_allowed":
-      return "auth_required";
-    case "billing_error":
-      return "quota_exhausted";
-    case "rate_limit":
-      return "rate_limited";
-    case "overloaded":
-      return "overloaded";
-    case "invalid_request":
-    case "model_not_found":
-      return "bad_request";
-    case "max_output_tokens":
-      return "context_exhausted";
-    case "server_error":
-    case "unknown":
-    case undefined:
-      return "provider_error";
-    default:
-      return "provider_error";
-  }
-}
-
 function parentToolUseIdOf(message: { parent_tool_use_id?: unknown }): string | null {
   if (!("parent_tool_use_id" in message)) return null;
   return typeof message.parent_tool_use_id === "string" ? message.parent_tool_use_id : null;
@@ -1764,12 +1645,7 @@ export class ClaudeAcpAgent {
       // steering extension contract: advertises the `_session/steering` request
       // so clients know they may inject a follow-up into a running turn.
       _meta: {
-        [JETBRAINS_META_KEY]: {
-          [AIR_META_KEY]: {
-            [AIR_EXTENSION_VERSION_KEY]: AIR_EXTENSION_VERSION,
-            [AIR_EXTENSION_CAPABILITIES_KEY]: [AIR_SESSION_FAILURE_KEY],
-          },
-        },
+        ...airSessionFailureCapabilityMeta(),
         steering: {
           supported: true,
         },
@@ -2284,6 +2160,8 @@ export class ClaudeAcpAgent {
     // it here so the subsequent `RequestError.internalError` can forward it to
     // clients as structured `data`, sparing them from pattern-matching on text.
     let lastAssistantError: SDKAssistantMessageError | undefined;
+    let lastAssistantWasUsageLimit = false;
+    let lastAssistantFailureTitle: string | undefined;
     // When a streaming classifier refuses a turn, the assistant message carries
     // stop_reason "refusal" and structured stop_details. We capture the
     // human-readable explanation so the terminal `result` can surface it.
@@ -2339,140 +2217,60 @@ export class ClaudeAcpAgent {
       await this.client.sessionUpdate(notification);
     };
 
-    type PublishedSessionFailure = {
-      id: string;
-      revision: number;
-      category: AirSessionFailureCategory;
-      turnId?: string;
-      severity?: AirSessionFailureSeverity;
-      /** Set when the notice carries its own wording instead of the canned per-category message. */
-      safeMessage?: string;
-    };
-    const isAdvisory = (failure: PublishedSessionFailure) => failure.severity === "warning";
-    const failureRevisions = new Map<string, number>();
-    const sessionFailureEpoch = randomUUID();
-    const activeSessionFailures = new Map<string, PublishedSessionFailure>();
     let pendingWorkerShutdown = false;
     const isCurrentConsumer = () => this.sessions[params.sessionId] === session;
-
-    const sessionFailureMeta = (failure: PublishedSessionFailure, phase: "active" | "cleared") => {
-      const presentation = AIR_FAILURE_PRESENTATION[failure.category];
-      return {
-        [JETBRAINS_META_KEY]: {
-          [AIR_META_KEY]: {
-            [AIR_EXTENSION_VERSION_KEY]: AIR_EXTENSION_VERSION,
-            [AIR_SESSION_FAILURE_KEY]: {
-              id: failure.id,
-              revision: failure.revision,
-              phase,
-              category: failure.category,
-              source: "claude",
-              safeMessage: failure.safeMessage ?? presentation.message,
-              retryable: presentation.retryable,
-              actions: presentation.actions,
-              ...(failure.turnId ? { turnId: failure.turnId } : {}),
-              ...(failure.severity ? { severity: failure.severity } : {}),
-            },
-          },
-        },
-      };
-    };
-
-    const emitSessionFailure = async (
-      failure: PublishedSessionFailure,
-      phase: "active" | "cleared",
-    ): Promise<boolean> => {
-      if (!isCurrentConsumer()) {
-        this.logger.error(
-          `Session ${params.sessionId}: ignored AIR session failure from a stale query consumer`,
-        );
-        return false;
-      }
-      try {
-        await sendUpdate({
-          sessionId: params.sessionId,
-          update: {
-            sessionUpdate: "session_info_update",
-            _meta: sessionFailureMeta(failure, phase),
-          },
-        });
-        return true;
-      } catch (error) {
-        this.logger.error(
-          `Session ${params.sessionId}: failed to publish AIR session failure: ${error}`,
-        );
-        return false;
-      }
-    };
-
-    const clearSessionFailure = async (
-      shouldClear: (failure: PublishedSessionFailure) => boolean = () => true,
-    ) => {
-      if (!supportsAirSessionFailures(this.clientCapabilities)) return;
-      for (const failure of [...activeSessionFailures.values()]) {
-        if (!shouldClear(failure)) continue;
-        const cleared = {
-          ...failure,
-          revision: failure.revision + 1,
-        };
-        if (await emitSessionFailure(cleared, "cleared")) {
-          failureRevisions.set(cleared.id, cleared.revision);
-          activeSessionFailures.delete(cleared.id);
-        }
-      }
-    };
-
+    const sessionFailures = new SessionFailureController({
+      sessionId: params.sessionId,
+      state: session.sessionFailureState,
+      capabilities: this.clientCapabilities,
+      isCurrent: isCurrentConsumer,
+      sendUpdate,
+      logger: this.logger,
+    });
     const createSessionFailure = async (
-      category: AirSessionFailureCategory,
-      options: { turnScoped?: boolean; safeMessage?: string } = {},
+      kind: ClaudeFailureKind,
+      options: {
+        turnScoped?: boolean;
+        title?: string;
+        details?: string;
+        severity?: "warning" | "error";
+      } = {},
     ): Promise<PublishedSessionFailure | undefined> => {
-      if (!supportsAirSessionFailures(this.clientCapabilities) || !isCurrentConsumer()) {
-        return undefined;
-      }
-      // An advisory is not a failure of the turn: it keeps its own id namespace and its own slot, so
-      // it neither clears an actionable error nor is cleared by one. Only the newest advisory
-      // matters, so they all share one id and bump its revision.
-      if (category === "advisory") {
-        const id = `${params.sessionId}:notice:${sessionFailureEpoch}`;
-        return {
-          id,
-          revision: (failureRevisions.get(id) ?? 0) + 1,
-          category,
-          severity: "warning",
-          ...(options.safeMessage ? { safeMessage: options.safeMessage } : {}),
-        };
-      }
       const turnId = options.turnScoped === false ? undefined : session.activeTurn?.promptUuid;
-      const id = turnId
-        ? `${turnId}:error`
-        : `${params.sessionId}:session-error:${sessionFailureEpoch}`;
-      await clearSessionFailure((failure) => failure.id !== id && !isAdvisory(failure));
-      return {
-        id,
-        revision: (failureRevisions.get(id) ?? 0) + 1,
-        category,
-        ...(turnId ? { turnId } : {}),
-      };
+      return sessionFailures.prepare(kind, {
+        turnId,
+        sessionScoped: options.turnScoped === false,
+        title: options.title,
+        details: options.details,
+        severity: options.severity,
+      });
     };
 
     const publishSessionFailure = async (
-      category: AirSessionFailureCategory,
-      options: { turnScoped?: boolean; safeMessage?: string } = {},
+      kind: ClaudeFailureKind,
+      options: {
+        turnScoped?: boolean;
+        title?: string;
+        details?: string;
+        severity?: "warning" | "error";
+      } = {},
     ) => {
-      const failure = await createSessionFailure(category, options);
-      if (!failure) return;
-      if (await emitSessionFailure(failure, "active")) {
-        failureRevisions.set(failure.id, failure.revision);
-        activeSessionFailures.set(failure.id, failure);
-      }
+      const turnId = options.turnScoped === false ? undefined : session.activeTurn?.promptUuid;
+      await sessionFailures.publish(kind, {
+        turnId,
+        sessionScoped: options.turnScoped === false,
+        title: options.title,
+        details: options.details,
+        severity: options.severity,
+      });
     };
 
     const clearFailuresFromEarlierTurns = async () => {
       const activeTurnId = session.activeTurn?.promptUuid;
       // Advisories carry no turnId, so without the guard every turn boundary would sweep them away.
       // They are session-scoped and stay until superseded or dismissed by the user.
-      await clearSessionFailure(
-        (failure) => failure.turnId !== activeTurnId && !isAdvisory(failure),
+      await sessionFailures.clear(
+        (failure) => failure.recoveryPolicy === "next_attempt" && failure.turnId !== activeTurnId,
       );
     };
 
@@ -2487,6 +2285,8 @@ export class ClaudeAcpAgent {
       lastAssistantUsage = null;
       lastAssistantModel = null;
       lastAssistantError = undefined;
+      lastAssistantWasUsageLimit = false;
+      lastAssistantFailureTitle = undefined;
       lastRefusalExplanation = null;
       compactionInProgress = false;
       // Do NOT reset currentStreamMessageId or streamedBlocks here. Turn
@@ -2796,8 +2596,9 @@ export class ClaudeAcpAgent {
      *  which is the canonical AIR carrier. Legacy clients keep the historical
      *  JSON-RPC rejection path. */
     const failActiveWithSessionFailure = async (
-      category: AirSessionFailureCategory,
+      kind: ClaudeFailureKind,
       error: unknown,
+      title?: string,
     ) => {
       if (!supportsAirSessionFailures(this.clientCapabilities)) {
         failActive(error);
@@ -2805,22 +2606,21 @@ export class ClaudeAcpAgent {
       }
       if (!session.activeTurn || session.activeTurn.settled) {
         this.logger.error(
-          `Session ${params.sessionId}: cannot attach ${category} to a prompt response because no active turn exists; publishing a session-scoped failure`,
+          `Session ${params.sessionId}: cannot attach ${kind} to a prompt response because no active turn exists; publishing a session-scoped failure`,
         );
-        await publishSessionFailure(category, { turnScoped: false });
+        await publishSessionFailure(kind, { turnScoped: false, title });
         return;
       }
-      const failure = await createSessionFailure(category);
+      const failure = await createSessionFailure(kind, { title });
       if (!failure) {
         failActive(error);
         return;
       }
-      failureRevisions.set(failure.id, failure.revision);
-      activeSessionFailures.set(failure.id, failure);
+      sessionFailures.recordActive(failure);
       settleActive({
         stopReason: "end_turn",
         usage: sessionUsage(session),
-        _meta: sessionFailureMeta(failure, "active"),
+        _meta: sessionFailureMeta(failure),
       });
     };
 
@@ -3344,6 +3144,7 @@ export class ClaudeAcpAgent {
                         errorKindData("no_result"),
                         TURN_NO_RESULT_MESSAGE,
                       ),
+                      TURN_NO_RESULT_MESSAGE,
                     );
                   }
                   // The SDK generates the session title in a background task and
@@ -3581,10 +3382,25 @@ export class ClaudeAcpAgent {
               }
               case "plugin_install":
               case "notification":
-              case "api_retry":
               case "thinking_tokens":
                 // Todo: process via status api: https://docs.claude.com/en/docs/claude-code/hooks#hook-output
                 break;
+              case "api_retry": {
+                const title =
+                  message.error_status === null
+                    ? `Reconnecting to Claude, attempt ${message.attempt} of ${message.max_retries}.`
+                    : `Retrying Claude, attempt ${message.attempt} of ${message.max_retries}.`;
+                await publishSessionFailure(
+                  message.error_status === null
+                    ? "transport_lost"
+                    : providerFailureCategory(message.error),
+                  {
+                    title,
+                    severity: "warning",
+                  },
+                );
+                break;
+              }
               case "model_refusal_fallback": {
                 // The SDK retried a refused turn on the fallback model and made
                 // the swap persistent for the session. Without a notice the
@@ -3610,22 +3426,30 @@ export class ClaudeAcpAgent {
                 const category = message.api_refusal_category
                   ? ` (${message.api_refusal_category})`
                   : "";
-                const explanation = message.api_refusal_explanation
-                  ? `\n\n${message.api_refusal_explanation}`
-                  : "";
                 const outcome = persistent
                   ? `The session will continue on ${message.fallback_model}.`
                   : local
                     ? `Only that response came from ${message.fallback_model}; the session stays on ${message.original_model}.`
                     : `The session stays on ${message.original_model}.`;
-                const fallbackNotice =
+                const fallbackSummary =
                   `${message.original_model} declined this request${category}; ` +
-                  `retried with ${message.fallback_model}. ${outcome}${explanation}`;
+                  `retried with ${message.fallback_model}. ${outcome}`;
+                const explanation = message.api_refusal_explanation || undefined;
+                const fallbackNotice = explanation
+                  ? `${fallbackSummary}\n\n${explanation}`
+                  : fallbackSummary;
                 // A silent model swap is a session-level advisory, not something the model said.
                 // Clients that negotiated typed records get it as one; the rest keep the bold-label
                 // transcript line, which was the only way to flag it before.
                 if (supportsAirSessionFailures(this.clientCapabilities)) {
-                  await publishSessionFailure("advisory", { safeMessage: fallbackNotice });
+                  const useDetails =
+                    explanation !== undefined &&
+                    fallbackSummary.length + 2 + explanation.length >
+                      MAX_INLINE_FAILURE_TITLE_LENGTH;
+                  await publishSessionFailure("advisory", {
+                    title: useDetails ? fallbackSummary : fallbackNotice,
+                    ...(useDetails ? { details: explanation } : {}),
+                  });
                 } else {
                   await sendUpdate({
                     sessionId: message.session_id,
@@ -3983,8 +3807,13 @@ export class ClaudeAcpAgent {
                 break;
               }
 
-              if (!message.is_error) {
-                await clearSessionFailure();
+              if (!message.is_error && lastAssistantModel !== null) {
+                const activeTurnId = session.activeTurn?.promptUuid;
+                await sessionFailures.clear(
+                  (failure) =>
+                    failure.recoveryPolicy === "real_model_success" ||
+                    (failure.severity === "warning" && failure.turnId === activeTurnId),
+                );
               }
 
               switch (message.subtype) {
@@ -3993,6 +3822,7 @@ export class ClaudeAcpAgent {
                     await failActiveWithSessionFailure(
                       "auth_required",
                       RequestError.authRequired(),
+                      message.result,
                     );
                     break;
                   }
@@ -4002,8 +3832,9 @@ export class ClaudeAcpAgent {
                   }
                   if (message.is_error) {
                     await failActiveWithSessionFailure(
-                      providerFailureCategory(lastAssistantError),
+                      providerFailureCategory(lastAssistantError, lastAssistantWasUsageLimit),
                       internalErrorForClient(errorKindData(lastAssistantError), message.result),
+                      lastAssistantFailureTitle ?? message.result,
                     );
                     break;
                   }
@@ -4050,11 +3881,12 @@ export class ClaudeAcpAgent {
                   }
                   if (message.is_error) {
                     await failActiveWithSessionFailure(
-                      providerFailureCategory(lastAssistantError),
+                      providerFailureCategory(lastAssistantError, lastAssistantWasUsageLimit),
                       internalErrorForClient(
                         errorKindData(lastAssistantError),
                         message.errors.join(", ") || message.subtype,
                       ),
+                      lastAssistantFailureTitle ?? (message.errors.join(", ") || message.subtype),
                     );
                     break;
                   }
@@ -4069,6 +3901,7 @@ export class ClaudeAcpAgent {
                         errorKindData(lastAssistantError),
                         message.errors.join(", ") || message.subtype,
                       ),
+                      message.errors.join(", ") || message.subtype,
                     );
                     break;
                   }
@@ -4077,11 +3910,12 @@ export class ClaudeAcpAgent {
                 case "error_max_turns":
                   if (message.is_error) {
                     await failActiveWithSessionFailure(
-                      "provider_error",
+                      "context_exhausted",
                       internalErrorForClient(
                         errorKindData(lastAssistantError),
                         message.errors.join(", ") || message.subtype,
                       ),
+                      message.errors.join(", ") || message.subtype,
                     );
                     break;
                   }
@@ -4095,6 +3929,7 @@ export class ClaudeAcpAgent {
                         errorKindData(lastAssistantError),
                         message.errors.join(", ") || message.subtype,
                       ),
+                      message.errors.join(", ") || message.subtype,
                     );
                     break;
                   }
@@ -4385,6 +4220,10 @@ export class ClaudeAcpAgent {
             if (message.type === "assistant" && message.parent_tool_use_id === null) {
               lastAssistantUsage = snapshotFromUsage(message.message.usage);
               lastAssistantTotalUsage = totalTokens(lastAssistantUsage);
+              lastAssistantWasUsageLimit = isSyntheticUsageLimitMessage(message.message);
+              if (message.error || lastAssistantWasUsageLimit) {
+                lastAssistantFailureTitle = assistantMessageText(message.message);
+              }
               if (message.message.model && message.message.model !== "<synthetic>") {
                 lastAssistantModel = message.message.model;
               }
@@ -4459,7 +4298,25 @@ export class ClaudeAcpAgent {
             }
 
             if (message.type === "assistant" && isSyntheticLoginMessage(message.message)) {
-              await failActiveWithSessionFailure("auth_required", RequestError.authRequired());
+              await failActiveWithSessionFailure(
+                "auth_required",
+                RequestError.authRequired(),
+                assistantMessageText(message.message),
+              );
+              break;
+            }
+
+            // AIR receives this provider condition on the terminal prompt
+            // response as a typed failure whose title is the exact assistant
+            // error text captured above. Do not duplicate that text as an
+            // ordinary assistant message; legacy clients retain the historical
+            // transcript behavior.
+            if (
+              message.type === "assistant" &&
+              message.parent_tool_use_id === null &&
+              (message.error || isSyntheticUsageLimitMessage(message.message)) &&
+              supportsAirSessionFailures(this.clientCapabilities)
+            ) {
               break;
             }
 
@@ -4649,7 +4506,7 @@ export class ClaudeAcpAgent {
             break;
           case "auth_status":
             if (!message.isAuthenticating && message.error === undefined) {
-              await clearSessionFailure((failure) => failure.category === "auth_required");
+              await sessionFailures.clear((failure) => failure.kind === "auth_required");
             }
             break;
           default:
@@ -5199,11 +5056,33 @@ export class ClaudeAcpAgent {
   private async replaySessionHistory(sessionId: string): Promise<void> {
     const toolUseCache: ToolUseCache = {};
     const messages = await getSessionMessages(sessionId);
+    const session = this.sessions[sessionId];
     const forwardSubagentText =
-      this.sessions[sessionId]?.forwardSubagentText ??
-      supportsSubagentTranscript(this.clientCapabilities);
+      session?.forwardSubagentText ?? supportsSubagentTranscript(this.clientCapabilities);
+    const supportsTypedFailures = supportsAirSessionFailures(this.clientCapabilities);
+    const activeUsageLimit = supportsTypedFailures ? activeUsageLimitMessage(messages) : undefined;
+    const sessionFailures =
+      session && supportsTypedFailures
+        ? new SessionFailureController({
+            sessionId,
+            state: session.sessionFailureState,
+            capabilities: this.clientCapabilities,
+            isCurrent: () => this.sessions[sessionId] === session,
+            sendUpdate: (notification) => this.client.sessionUpdate(notification),
+            logger: this.logger,
+          })
+        : undefined;
+    let replayTurnId: string | undefined;
 
     for (const message of messages) {
+      if (
+        message.type === "user" &&
+        message.parent_tool_use_id === null &&
+        typeof message.uuid === "string" &&
+        message.uuid.length > 0
+      ) {
+        replayTurnId = message.uuid;
+      }
       // Backfill the ACP messageId -> SDK uuid mapping for messages we didn't
       // observe live (resumed/loaded sessions), so rewind/resume can translate
       // a client-supplied id without an extra getSessionMessages read. Not read
@@ -5221,6 +5100,29 @@ export class ClaudeAcpAgent {
         continue;
       }
 
+      // Capable clients saw every synthetic usage-limit message as a typed
+      // failure live, so replay it at the same transcript position. The
+      // preceding persisted user uuid is the live prompt uuid and therefore
+      // recreates the same incident identity. Only the latest limit not
+      // followed by a real model answer remains active internally.
+      if (
+        sessionFailures &&
+        message.type === "assistant" &&
+        message.parent_tool_use_id === null &&
+        isSyntheticUsageLimitMessage(message.message)
+      ) {
+        const title = assistantMessageText(message.message);
+        if (title) {
+          await sessionFailures.restore(
+            replayTurnId ? `${replayTurnId}:error` : `${sessionId}:history-error:${message.uuid}`,
+            "quota_exhausted",
+            title,
+            message.uuid === activeUsageLimit?.uuid,
+          );
+        }
+        continue;
+      }
+
       // @ts-expect-error - untyped in SDK but we handle all of these
       let content: unknown = message.message.content;
       const parentToolUseId = parentToolUseIdOf(message);
@@ -6599,6 +6501,7 @@ export class ClaudeAcpAgent {
       emittedAssistantText: false,
       owedTrailingIdles: 0,
       messageIdToUuid: new Map(),
+      sessionFailureState: createSessionFailureState(),
     };
 
     return {
diff --git a/src/session-failure-extension.ts b/src/session-failure-extension.ts
new file mode 100644
index 00000000..b2517c26
--- /dev/null
+++ b/src/session-failure-extension.ts
@@ -0,0 +1,463 @@
+import type { ClientCapabilities, SessionNotification } from "@agentclientprotocol/sdk";
+import {
+  getSessionMessages,
+  type SDKAssistantMessageError,
+  USAGE_LIMIT_ERROR_PREFIXES,
+} from "@anthropic-ai/claude-agent-sdk";
+import { randomUUID } from "node:crypto";
+
+const JETBRAINS_META_KEY = "jetbrains";
+const AIR_META_KEY = "air";
+const AIR_EXTENSION_VERSION_KEY = "version";
+const AIR_EXTENSION_CAPABILITIES_KEY = "capabilities";
+const AIR_SESSION_FAILURE_KEY = "sessionFailure";
+const AIR_EXTENSION_VERSION = 1;
+
+export function airSessionFailureCapabilityMeta() {
+  return {
+    [JETBRAINS_META_KEY]: {
+      [AIR_META_KEY]: {
+        [AIR_EXTENSION_VERSION_KEY]: AIR_EXTENSION_VERSION,
+        [AIR_EXTENSION_CAPABILITIES_KEY]: [AIR_SESSION_FAILURE_KEY],
+      },
+    },
+  };
+}
+
+export type ClaudeFailureKind =
+  | "advisory"
+  | "auth_required"
+  | "bad_request"
+  | "budget_exhausted"
+  | "context_exhausted"
+  | "internal_error"
+  | "overloaded"
+  | "provider_error"
+  | "quota_exhausted"
+  | "rate_limited"
+  | "transport_lost"
+  | "worker_shutdown";
+
+type AirSessionFailureCategory =
+  "connection" | "access" | "limit" | "request" | "service" | "unknown";
+
+type AirSessionFailureSeverity = "warning" | "error";
+type AirSessionFailureAction = "retry" | "login" | "new_session";
+
+type SessionFailureRecoveryPolicy =
+  "never" | "next_attempt" | "real_model_success" | "auth_status" | "runtime_rebind";
+
+export type PublishedSessionFailure = {
+  id: string;
+  revision: number;
+  kind: ClaudeFailureKind;
+  category: AirSessionFailureCategory;
+  turnId?: string;
+  severity: AirSessionFailureSeverity;
+  title: string;
+  details?: string;
+  actions: AirSessionFailureAction[];
+  recoveryPolicy: SessionFailureRecoveryPolicy;
+};
+
+type SessionFailureOptions = {
+  turnId?: string;
+  sessionScoped?: boolean;
+  title?: string;
+  details?: string;
+  severity?: AirSessionFailureSeverity;
+};
+
+export type SessionFailureState = {
+  epoch: string;
+  revisions: Map<string, number>;
+  active: Map<string, PublishedSessionFailure>;
+  nextIncident?: number;
+  lastNotice?: { title: string; id: string };
+};
+
+type Logger = {
+  error: (...args: unknown[]) => void;
+};
+
+export function createSessionFailureState(): SessionFailureState {
+  return {
+    epoch: randomUUID(),
+    revisions: new Map(),
+    active: new Map(),
+  };
+}
+
+const AIR_FAILURE_POLICY: Record<
+  ClaudeFailureKind,
+  {
+    category: AirSessionFailureCategory;
+    actions: AirSessionFailureAction[];
+    fallbackTitle: string;
+  }
+> = {
+  advisory: {
+    category: "unknown",
+    actions: [],
+    fallbackTitle: "Claude reported a notice.",
+  },
+  auth_required: {
+    category: "access",
+    actions: ["login"],
+    fallbackTitle: "Sign in to continue using Claude.",
+  },
+  bad_request: {
+    category: "request",
+    actions: [],
+    fallbackTitle: "Claude could not process this request.",
+  },
+  budget_exhausted: {
+    category: "limit",
+    actions: ["new_session"],
+    fallbackTitle: "This Claude session reached its configured budget.",
+  },
+  context_exhausted: {
+    category: "limit",
+    actions: ["new_session"],
+    fallbackTitle: "This Claude turn reached its configured limit.",
+  },
+  internal_error: {
+    category: "service",
+    actions: ["retry", "new_session"],
+    fallbackTitle: "Claude Agent encountered an internal error.",
+  },
+  overloaded: {
+    category: "service",
+    actions: ["retry"],
+    fallbackTitle: "Claude is temporarily overloaded.",
+  },
+  provider_error: {
+    category: "service",
+    actions: ["retry"],
+    fallbackTitle: "The model provider reported an error.",
+  },
+  quota_exhausted: {
+    category: "limit",
+    actions: [],
+    fallbackTitle: "The Claude account has no available quota.",
+  },
+  rate_limited: {
+    category: "limit",
+    actions: ["retry"],
+    fallbackTitle: "Claude is temporarily rate limited.",
+  },
+  transport_lost: {
+    category: "connection",
+    actions: ["new_session"],
+    fallbackTitle: "The connection to Claude was lost.",
+  },
+  worker_shutdown: {
+    category: "connection",
+    actions: ["new_session"],
+    fallbackTitle: "The Claude worker is shutting down.",
+  },
+};
+
+export function sessionFailureMeta(failure: PublishedSessionFailure) {
+  return {
+    [JETBRAINS_META_KEY]: {
+      [AIR_META_KEY]: {
+        [AIR_EXTENSION_VERSION_KEY]: AIR_EXTENSION_VERSION,
+        [AIR_SESSION_FAILURE_KEY]: {
+          id: failure.id,
+          revision: failure.revision,
+          category: failure.category,
+          severity: failure.severity,
+          title: failure.title,
+          ...(failure.details ? { details: failure.details } : {}),
+          actions: failure.actions,
+        },
+      },
+    },
+  };
+}
+
+/** `getSessionMessages` deliberately exposes only the API message and strips
+ *  transcript-level `error` / `isApiErrorMessage` fields. The SDK exports the
+ *  exact stable prefixes used by its synthetic usage-limit errors, so replay
+ *  can recover this one typed failure without matching arbitrary model prose. */
+export function assistantMessageText(apiMessage: unknown): string | undefined {
+  if (!apiMessage || typeof apiMessage !== "object") return undefined;
+  const { content } = apiMessage as { content?: unknown };
+  if (typeof content === "string") return content || undefined;
+  if (!Array.isArray(content)) return undefined;
+  const text = content
+    .map((block) =>
+      block &&
+      typeof block === "object" &&
+      "type" in block &&
+      block.type === "text" &&
+      "text" in block &&
+      typeof block.text === "string"
+        ? block.text
+        : "",
+    )
+    .join("");
+  return text || undefined;
+}
+
+export function isSyntheticUsageLimitMessage(apiMessage: unknown): boolean {
+  if (!apiMessage || typeof apiMessage !== "object") return false;
+  const { model } = apiMessage as { model?: unknown };
+  if (model !== "<synthetic>") return false;
+  const text = assistantMessageText(apiMessage);
+  if (!text) return false;
+  return USAGE_LIMIT_ERROR_PREFIXES.some((prefix) => text.startsWith(prefix));
+}
+
+export function activeUsageLimitMessage(
+  messages: Awaited<ReturnType<typeof getSessionMessages>>,
+): { uuid: string; title: string } | undefined {
+  let active: { uuid: string; title: string } | undefined;
+  for (const message of messages) {
+    if (message.type !== "assistant" || message.parent_tool_use_id !== null) continue;
+    if (isSyntheticUsageLimitMessage(message.message)) {
+      const title = assistantMessageText(message.message);
+      if (title) active = { uuid: message.uuid, title };
+      continue;
+    }
+    const model =
+      message.message && typeof message.message === "object" && "model" in message.message
+        ? message.message.model
+        : undefined;
+    // A later real model answer proves the account recovered. Synthetic
+    // local-command/interruption messages do not: they can be appended while
+    // the provider remains unavailable.
+    if (model !== undefined && model !== "<synthetic>") active = undefined;
+  }
+  return active;
+}
+
+export function supportsAirSessionFailures(capabilities?: ClientCapabilities): boolean {
+  const jetbrains = capabilities?._meta?.[JETBRAINS_META_KEY] as
+    Record<string, unknown> | undefined;
+  const air = jetbrains?.[AIR_META_KEY] as Record<string, unknown> | undefined;
+  const version = air?.[AIR_EXTENSION_VERSION_KEY];
+  const advertised = air?.[AIR_EXTENSION_CAPABILITIES_KEY];
+  return (
+    typeof version === "number" &&
+    Number.isFinite(version) &&
+    Number.isInteger(version) &&
+    version >= AIR_EXTENSION_VERSION &&
+    Array.isArray(advertised) &&
+    advertised.some((capability) => capability === AIR_SESSION_FAILURE_KEY)
+  );
+}
+
+function sessionFailureRecoveryPolicy(
+  kind: ClaudeFailureKind,
+  turnId?: string,
+): SessionFailureRecoveryPolicy {
+  switch (kind) {
+    case "advisory":
+      return "never";
+    case "auth_required":
+      return "auth_status";
+    case "transport_lost":
+    case "worker_shutdown":
+      return "runtime_rebind";
+    case "quota_exhausted":
+      return "real_model_success";
+    default:
+      return turnId ? "next_attempt" : "real_model_success";
+  }
+}
+
+/** Owns the AIR failure lifecycle for both the live consumer and history replay.
+ *  Published revisions become active only after delivery succeeds; recovery only
+ *  removes internal active state because transcript records are historical. */
+export class SessionFailureController {
+  private readonly sessionId: string;
+  private readonly state: SessionFailureState;
+  private readonly capabilities?: ClientCapabilities;
+  private readonly isCurrent: () => boolean;
+  private readonly sendUpdate: (notification: SessionNotification) => Promise<void>;
+  private readonly logger: Logger;
+
+  constructor(options: {
+    sessionId: string;
+    state: SessionFailureState;
+    capabilities?: ClientCapabilities;
+    isCurrent: () => boolean;
+    sendUpdate: (notification: SessionNotification) => Promise<void>;
+    logger: Logger;
+  }) {
+    this.sessionId = options.sessionId;
+    this.state = options.state;
+    this.capabilities = options.capabilities;
+    this.isCurrent = options.isCurrent;
+    this.sendUpdate = options.sendUpdate;
+    this.logger = options.logger;
+  }
+
+  private isSupported(): boolean {
+    return supportsAirSessionFailures(this.capabilities);
+  }
+
+  private async emit(failure: PublishedSessionFailure): Promise<boolean> {
+    if (!this.isCurrent()) {
+      this.logger.error(
+        `Session ${this.sessionId}: ignored AIR session failure from a stale consumer`,
+      );
+      return false;
+    }
+    try {
+      await this.sendUpdate({
+        sessionId: this.sessionId,
+        update: {
+          sessionUpdate: "session_info_update",
+          _meta: sessionFailureMeta(failure),
+        },
+      });
+      return true;
+    } catch (error) {
+      this.logger.error(
+        `Session ${this.sessionId}: failed to publish AIR session failure: ${error}`,
+      );
+      return false;
+    }
+  }
+
+  recordActive(failure: PublishedSessionFailure): void {
+    this.state.revisions.set(failure.id, failure.revision);
+    this.state.active.set(failure.id, failure);
+    this.state.lastNotice =
+      failure.kind === "advisory" ? { title: failure.title, id: failure.id } : undefined;
+  }
+
+  async clear(
+    shouldClear: (failure: PublishedSessionFailure) => boolean = () => true,
+  ): Promise<boolean> {
+    if (!this.isSupported()) return true;
+    this.state.lastNotice = undefined;
+    for (const failure of [...this.state.active.values()]) {
+      if (!shouldClear(failure)) continue;
+      this.state.active.delete(failure.id);
+    }
+    return true;
+  }
+
+  async prepare(
+    kind: ClaudeFailureKind,
+    failureOptions: SessionFailureOptions = {},
+  ): Promise<PublishedSessionFailure | undefined> {
+    if (!this.isSupported() || !this.isCurrent()) return undefined;
+    const policy = AIR_FAILURE_POLICY[kind];
+    const title = failureOptions.title || policy.fallbackTitle;
+    if (kind === "advisory") {
+      const id =
+        this.state.lastNotice?.title === title
+          ? this.state.lastNotice.id
+          : `${this.sessionId}:notice:${this.state.epoch}:${this.state.nextIncident ?? 1}`;
+      if (this.state.lastNotice?.title !== title) {
+        this.state.nextIncident = (this.state.nextIncident ?? 1) + 1;
+      }
+      return {
+        id,
+        revision: (this.state.revisions.get(id) ?? 0) + 1,
+        kind,
+        category: policy.category,
+        severity: "warning",
+        title,
+        ...(failureOptions.details ? { details: failureOptions.details } : {}),
+        actions: policy.actions,
+        recoveryPolicy: sessionFailureRecoveryPolicy(kind),
+      };
+    }
+    const id =
+      failureOptions.turnId && !failureOptions.sessionScoped
+        ? `${failureOptions.turnId}:error`
+        : `${this.sessionId}:session-error:${this.state.epoch}:${this.state.nextIncident ?? 1}`;
+    if (!failureOptions.turnId || failureOptions.sessionScoped) {
+      this.state.nextIncident = (this.state.nextIncident ?? 1) + 1;
+    }
+    return {
+      id,
+      revision: (this.state.revisions.get(id) ?? 0) + 1,
+      kind,
+      category: policy.category,
+      severity: failureOptions.severity ?? "error",
+      title,
+      ...(failureOptions.details ? { details: failureOptions.details } : {}),
+      actions: failureOptions.severity === "warning" ? [] : policy.actions,
+      recoveryPolicy: sessionFailureRecoveryPolicy(
+        kind,
+        failureOptions.turnId && !failureOptions.sessionScoped ? failureOptions.turnId : undefined,
+      ),
+      ...(failureOptions.turnId && !failureOptions.sessionScoped
+        ? { turnId: failureOptions.turnId }
+        : {}),
+    };
+  }
+
+  async publish(
+    kind: ClaudeFailureKind,
+    failureOptions: SessionFailureOptions = {},
+  ): Promise<void> {
+    const failure = await this.prepare(kind, failureOptions);
+    if (!failure) return;
+    if (await this.emit(failure)) this.recordActive(failure);
+  }
+
+  async restore(
+    id: string,
+    kind: ClaudeFailureKind,
+    title: string,
+    active = true,
+  ): Promise<boolean> {
+    if (!this.isSupported() || !this.isCurrent()) return false;
+    const policy = AIR_FAILURE_POLICY[kind];
+    const failure: PublishedSessionFailure = {
+      id,
+      revision: (this.state.revisions.get(id) ?? 0) + 1,
+      kind,
+      category: policy.category,
+      severity: "error",
+      title,
+      actions: policy.actions,
+      recoveryPolicy: sessionFailureRecoveryPolicy(kind),
+    };
+    if (!(await this.emit(failure))) return false;
+    this.state.revisions.set(failure.id, failure.revision);
+    if (active) {
+      this.state.active.set(failure.id, failure);
+    } else {
+      this.state.active.delete(failure.id);
+    }
+    return true;
+  }
+}
+
+export function providerFailureCategory(
+  errorKind?: SDKAssistantMessageError,
+  isUsageLimit = false,
+): ClaudeFailureKind {
+  if (isUsageLimit) return "quota_exhausted";
+  switch (errorKind) {
+    case "authentication_failed":
+    case "oauth_org_not_allowed":
+      return "auth_required";
+    case "billing_error":
+      return "quota_exhausted";
+    case "rate_limit":
+      return "rate_limited";
+    case "overloaded":
+      return "overloaded";
+    case "invalid_request":
+    case "model_not_found":
+      return "bad_request";
+    case "max_output_tokens":
+      return "context_exhausted";
+    case "server_error":
+    case "unknown":
+    case undefined:
+      return "provider_error";
+    default:
+      return "provider_error";
+  }
+}
diff --git a/src/tests/acp-agent.test.ts b/src/tests/acp-agent.test.ts
index d327928c..3ba8ca87 100644
--- a/src/tests/acp-agent.test.ts
+++ b/src/tests/acp-agent.test.ts
@@ -54,6 +54,7 @@ import {
   SDKAssistantMessage,
 } from "@anthropic-ai/claude-agent-sdk";
 import { randomUUID } from "crypto";
+import { readFile } from "node:fs/promises";
 import {
   GOAL_CONTROL_METHOD,
   goalUpdateFromPrompt,
@@ -173,6 +174,7 @@ function mockSessionState(overrides: Record<string, any> = {}) {
     emittedAssistantText: false,
     owedTrailingIdles: 0,
     messageIdToUuid: new Map(),
+    sessionFailureState: { epoch: randomUUID(), revisions: new Map(), active: new Map() },
     ...overrides,
   } as any;
 }
@@ -1804,6 +1806,325 @@ describe("synthetic login message (issue #863)", () => {
   });
 });
 
+describe("usage-limit failure replay", () => {
+  const usageLimitMessage = {
+    type: "assistant" as const,
+    uuid: "usage-limit-message",
+    session_id: "s1",
+    parent_tool_use_id: null,
+    parent_agent_id: null,
+    message: {
+      id: "api-usage-limit-message",
+      model: "<synthetic>",
+      role: "assistant",
+      type: "message",
+      stop_reason: "stop_sequence",
+      content: [
+        {
+          type: "text",
+          text: "You've hit your individual spend limit · run /usage-credits to ask your admin for a higher limit",
+        },
+      ],
+    },
+  };
+  const airCapabilities = {
+    _meta: { jetbrains: { air: { version: 1, capabilities: ["sessionFailure"] } } },
+  };
+  const successfulResult = () => ({
+    type: "result" as const,
+    subtype: "success" as const,
+    stop_reason: "end_turn",
+    is_error: false,
+    result: "",
+    errors: [],
+    duration_ms: 0,
+    duration_api_ms: 0,
+    num_turns: 1,
+    total_cost_usd: 0,
+    usage: {
+      input_tokens: 0,
+      output_tokens: 0,
+      cache_read_input_tokens: 0,
+      cache_creation_input_tokens: 0,
+    },
+    modelUsage: {},
+    permission_denials: [],
+    uuid: randomUUID(),
+    session_id: "s1",
+  });
+
+  async function replay(messages: Awaited<ReturnType<typeof getSessionMessages>>, capable = true) {
+    const updates: SessionNotification[] = [];
+    const agent = new ClaudeAcpAgent(
+      {
+        sessionUpdate: async (update: SessionNotification) => updates.push(update),
+      } as unknown as AcpClient,
+      { log: () => {}, error: () => {} },
+    );
+    (agent as any).clientCapabilities = capable ? airCapabilities : {};
+    agent.sessions.s1 = mockSessionState();
+    vi.mocked(getSessionMessages).mockResolvedValueOnce(messages);
+    await (
+      agent as unknown as { replaySessionHistory(sessionId: string): Promise<void> }
+    ).replaySessionHistory("s1");
+    return { agent, updates };
+  }
+
+  it("restores the latest synthetic usage limit as a typed failure", async () => {
+    const { agent, updates } = await replay([
+      usageLimitMessage,
+      {
+        ...usageLimitMessage,
+        uuid: "local-command-result",
+        message: {
+          ...usageLimitMessage.message,
+          id: "api-local-command-result",
+          content: [{ type: "text", text: "No response requested." }],
+        },
+      },
+    ]);
+
+    const failure = updates
+      .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
+      .find(Boolean);
+    expect(failure).toEqual(
+      expect.objectContaining({
+        category: "limit",
+        severity: "error",
+        title:
+          "You've hit your individual spend limit · run /usage-credits to ask your admin for a higher limit",
+        actions: [],
+        revision: 1,
+      }),
+    );
+    expect(
+      updates.some(
+        (update) =>
+          update.update.sessionUpdate === "agent_message_chunk" &&
+          update.update.content.type === "text" &&
+          update.update.content.text.includes("individual spend limit"),
+      ),
+    ).toBe(false);
+    expect(agent.sessions.s1.sessionFailureState.active.get(failure.id)).toEqual(
+      expect.objectContaining({ kind: "quota_exhausted", category: "limit", revision: 1 }),
+    );
+  });
+
+  it("keeps a recovered historical failure as a typed transcript record", async () => {
+    const { updates } = await replay([
+      usageLimitMessage,
+      {
+        ...usageLimitMessage,
+        uuid: "recovered-answer",
+        message: {
+          ...usageLimitMessage.message,
+          id: "api-recovered-answer",
+          model: "claude-sonnet-4-6",
+          content: [{ type: "text", text: "Recovered" }],
+        },
+      },
+    ]);
+
+    const failures = updates
+      .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
+      .filter(Boolean);
+    expect(failures).toEqual([
+      expect.objectContaining({
+        id: "s1:history-error:usage-limit-message",
+        category: "limit",
+        severity: "error",
+      }),
+    ]);
+    expect(
+      updates.some(
+        (update) =>
+          update.update.sessionUpdate === "agent_message_chunk" &&
+          update.update.content.type === "text" &&
+          update.update.content.text.includes("individual spend limit"),
+      ),
+    ).toBe(false);
+  });
+
+  it("preserves the standard transcript for clients without the extension", async () => {
+    const { updates } = await replay([usageLimitMessage], false);
+
+    expect(JSON.stringify(updates)).toContain("individual spend limit");
+    expect(JSON.stringify(updates)).not.toContain("sessionFailure");
+  });
+
+  it("clears the replayed failure after a successful follow-up", async () => {
+    const { agent, updates } = await replay([usageLimitMessage]);
+    const session = agent.sessions.s1;
+    expect([...session.sessionFailureState.active.values()]).toEqual([
+      expect.objectContaining({ recoveryPolicy: "real_model_success" }),
+    ]);
+    const input = new Pushable<any>();
+    async function* messages() {
+      const iterator = input[Symbol.asyncIterator]();
+      const user = await iterator.next();
+      yield userEcho(user.value);
+      yield {
+        ...usageLimitMessage,
+        uuid: "recovered-model-answer",
+        message: {
+          ...usageLimitMessage.message,
+          id: "api-recovered-model-answer",
+          model: "claude-sonnet-4-6",
+          usage: {
+            input_tokens: 1,
+            output_tokens: 1,
+            cache_read_input_tokens: 0,
+            cache_creation_input_tokens: 0,
+          },
+          content: [{ type: "text", text: "Recovered" }],
+        },
+      };
+      yield successfulResult();
+      await iterator.next();
+    }
+    session.query = wrapQuery(messages());
+    session.input = input;
+
+    await agent.prompt({ sessionId: "s1", prompt: [{ type: "text", text: "try again" }] });
+    await vi.waitFor(() => {
+      expect(session.sessionFailureState.active.size).toBe(0);
+    });
+
+    const failures = updates
+      .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
+      .filter(Boolean);
+    expect(failures).toHaveLength(1);
+    expect(session.sessionFailureState.active.has(failures[0].id)).toBe(false);
+  });
+
+  it("does not clear restored quota after a successful local command", async () => {
+    const { agent, updates } = await replay([usageLimitMessage]);
+    const session = agent.sessions.s1;
+    expect([...session.sessionFailureState.active.values()]).toEqual([
+      expect.objectContaining({ recoveryPolicy: "real_model_success" }),
+    ]);
+    const input = new Pushable<any>();
+    async function* messages() {
+      const iterator = input[Symbol.asyncIterator]();
+      const user = await iterator.next();
+      yield userEcho(user.value);
+      yield {
+        ...usageLimitMessage,
+        uuid: "local-command-result",
+        message: {
+          ...usageLimitMessage.message,
+          id: "api-local-command-result",
+          usage: {
+            input_tokens: 0,
+            output_tokens: 0,
+            cache_read_input_tokens: 0,
+            cache_creation_input_tokens: 0,
+          },
+          content: [{ type: "text", text: "No response requested." }],
+        },
+      };
+      yield successfulResult();
+      await iterator.next();
+    }
+    session.query = wrapQuery(messages());
+    session.input = input;
+
+    await agent.prompt({ sessionId: "s1", prompt: [{ type: "text", text: "/usage" }] });
+    await vi.waitFor(() => {
+      expect(updates.some((update) => update.update.sessionUpdate === "usage_update")).toBe(true);
+    });
+
+    const failures = updates
+      .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
+      .filter(Boolean);
+    const quotaFailure = failures.find((failure) => failure.category === "limit");
+    expect(quotaFailure).toEqual(expect.objectContaining({ severity: "error", revision: 1 }));
+    expect(session.sessionFailureState.active.has(quotaFailure.id)).toBe(true);
+  });
+
+  it("replays every quota failure with its persisted turn id and keeps only the latest active", async () => {
+    const newerUsageLimitMessage = {
+      ...usageLimitMessage,
+      uuid: "newer-usage-limit-message",
+      message: {
+        ...usageLimitMessage.message,
+        id: "api-newer-usage-limit-message",
+        content: [{ type: "text", text: "You've reached your account usage limit" }],
+      },
+    };
+    const userMessage = (uuid: string) => ({
+      type: "user" as const,
+      uuid,
+      session_id: "s1",
+      parent_tool_use_id: null,
+      parent_agent_id: null,
+      message: { role: "user", content: [{ type: "text", text: "try" }] },
+    });
+    const { agent, updates } = await replay([
+      userMessage("turn-one"),
+      usageLimitMessage,
+      userMessage("turn-two"),
+      newerUsageLimitMessage,
+    ]);
+
+    const failures = updates
+      .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
+      .filter(Boolean);
+    expect(failures).toEqual([
+      expect.objectContaining({ id: "turn-one:error", severity: "error", revision: 1 }),
+      expect.objectContaining({ id: "turn-two:error", severity: "error", revision: 1 }),
+    ]);
+    expect([...agent.sessions.s1.sessionFailureState.active.keys()]).toEqual(["turn-two:error"]);
+  });
+
+  it("does not record a restored failure when publishing it fails", async () => {
+    const errors: unknown[][] = [];
+    const agent = new ClaudeAcpAgent(
+      {
+        sessionUpdate: async () => {
+          throw new Error("client disconnected");
+        },
+      } as unknown as AcpClient,
+      { log: () => {}, error: (...args) => errors.push(args) },
+    );
+    (agent as any).clientCapabilities = airCapabilities;
+    agent.sessions.s1 = mockSessionState();
+    vi.mocked(getSessionMessages).mockResolvedValueOnce([usageLimitMessage]);
+
+    await (
+      agent as unknown as { replaySessionHistory(sessionId: string): Promise<void> }
+    ).replaySessionHistory("s1");
+
+    expect(agent.sessions.s1.sessionFailureState.active.size).toBe(0);
+    expect(agent.sessions.s1.sessionFailureState.revisions.size).toBe(0);
+    expect(errors.flat().join(" ")).toContain("failed to publish AIR session failure");
+  });
+
+  it("recognizes a sanitized raw transcript through the real SDK parser", async () => {
+    const raw = await readFile(
+      new URL("./fixtures/usage-limit-session.jsonl", import.meta.url),
+      "utf8",
+    );
+    const entries = raw
+      .trim()
+      .split("\n")
+      .map((line) => JSON.parse(line));
+    const parsed = await getSessionMessages("aaaaaaaa-aaaa-4aaa-8aaa-aaaaaaaaaaaa", {
+      sessionStore: { load: async () => entries } as any,
+    });
+
+    expect(entries[1]).toMatchObject({ error: "rate_limit", isApiErrorMessage: true });
+    expect(parsed.find((message) => message.uuid === entries[1].uuid)).not.toHaveProperty("error");
+
+    const { updates } = await replay(parsed);
+    const failure = updates
+      .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
+      .find(Boolean);
+    expect(failure).toEqual(expect.objectContaining({ category: "limit", severity: "error" }));
+    expect(failure.title).toContain("individual spend limit");
+  });
+});
+
 describe("subagent transcript replay", () => {
   const replayHistory = [
     {
@@ -3158,7 +3479,10 @@ describe("stop reason propagation", () => {
     };
   }
 
-  function createAssistantError(error: SDKAssistantMessage["error"]): SDKAssistantMessage {
+  function createAssistantError(
+    error: SDKAssistantMessage["error"],
+    text?: string,
+  ): SDKAssistantMessage {
     return {
       type: "assistant",
       parent_tool_use_id: null,
@@ -3171,7 +3495,7 @@ describe("stop reason propagation", () => {
         role: "assistant",
         container: null,
         model: "claude-sonnet-4-20250514",
-        content: [],
+        content: text === undefined ? [] : [{ type: "text", text, citations: null }],
         stop_reason: "stop_sequence",
         stop_sequence: null,
         usage: {
@@ -3190,6 +3514,19 @@ describe("stop reason propagation", () => {
     };
   }
 
+  function createUsageLimitAssistantError(): SDKAssistantMessage {
+    const message = createAssistantError("rate_limit");
+    message.message.model = "<synthetic>";
+    message.message.content = [
+      {
+        type: "text",
+        text: "You've hit your individual spend limit · run /usage-credits to ask your admin for a higher limit",
+        citations: null,
+      },
+    ];
+    return message;
+  }
+
   const airSessionFailureCapabilities = {
     _meta: {
       jetbrains: {
@@ -3983,7 +4320,7 @@ describe("stop reason propagation", () => {
   });
 
   it.each([1, 2])(
-    "publishes a safe typed failure for compatible AIR version %i",
+    "publishes the Claude failure title for compatible AIR version %i",
     async (version) => {
       const updates: SessionNotification[] = [];
       const agent = new ClaudeAcpAgent(
@@ -4005,7 +4342,7 @@ describe("stop reason propagation", () => {
           subtype: "success",
           stop_reason: "end_turn",
           is_error: true,
-          result: "raw provider secret must not be shown",
+          result: "Claude could not complete the request.",
         }),
       ]);
 
@@ -4013,22 +4350,139 @@ describe("stop reason propagation", () => {
         sessionId: "test-session",
         prompt: [{ type: "text", text: "test" }],
       });
-      expect(sessionFailureFromResponse(response)).toEqual(
+      const failure = sessionFailureFromResponse(response);
+      expect(failure).toEqual(
         expect.objectContaining({
           revision: 1,
-          phase: "active",
-          category: "provider_error",
-          source: "claude",
-          safeMessage: "The model provider reported an error.",
-          retryable: true,
+          category: "service",
+          severity: "error",
+          title: "Claude could not complete the request.",
           actions: ["retry"],
         }),
       );
-      expect(JSON.stringify(response)).not.toContain("raw provider secret");
+      for (const removedField of [
+        "phase",
+        "source",
+        "safeMessage",
+        "retryable",
+        "retryAfterMs",
+        "turnId",
+      ]) {
+        expect(failure).not.toHaveProperty(removedField);
+      }
       expect(JSON.stringify(updates)).not.toContain("sessionFailure");
     },
   );
 
+  it("updates an api retry warning into the terminal failure", async () => {
+    const updates: SessionNotification[] = [];
+    const agent = new ClaudeAcpAgent(
+      {
+        sessionUpdate: async (update: SessionNotification) => updates.push(update),
+      } as unknown as AcpClient,
+      { log: () => {}, error: () => {} },
+    );
+    (agent as any).clientCapabilities = airSessionFailureCapabilities;
+    injectSession(agent, [
+      {
+        type: "system",
+        subtype: "api_retry",
+        attempt: 1,
+        max_retries: 5,
+        retry_delay_ms: 100,
+        error_status: 429,
+        error: "rate_limit",
+        uuid: randomUUID(),
+        session_id: "test-session",
+      },
+      createAssistantError("rate_limit", "Rate limit reached."),
+      createResultMessage({
+        subtype: "success",
+        stop_reason: "end_turn",
+        is_error: true,
+        result: "Rate limit reached.",
+      }),
+    ]);
+
+    const response = await agent.prompt({
+      sessionId: "test-session",
+      prompt: [{ type: "text", text: "test" }],
+    });
+    const warning = updates
+      .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
+      .find(Boolean);
+    const terminal = sessionFailureFromResponse(response);
+
+    expect(warning).toEqual(
+      expect.objectContaining({
+        category: "limit",
+        severity: "warning",
+        revision: 1,
+        title: "Retrying Claude, attempt 1 of 5.",
+        actions: [],
+      }),
+    );
+    expect(terminal).toEqual(
+      expect.objectContaining({
+        id: warning.id,
+        category: "limit",
+        severity: "error",
+        revision: 2,
+        title: "Rate limit reached.",
+        actions: ["retry"],
+      }),
+    );
+  });
+
+  it("clears a connection retry warning internally after the turn succeeds", async () => {
+    const updates: SessionNotification[] = [];
+    const agent = new ClaudeAcpAgent(
+      {
+        sessionUpdate: async (update: SessionNotification) => updates.push(update),
+      } as unknown as AcpClient,
+      { log: () => {}, error: () => {} },
+    );
+    (agent as any).clientCapabilities = airSessionFailureCapabilities;
+    injectSession(agent, [
+      {
+        type: "system",
+        subtype: "api_retry",
+        attempt: 2,
+        max_retries: 5,
+        retry_delay_ms: 100,
+        error_status: null,
+        error: "unknown",
+        uuid: randomUUID(),
+        session_id: "test-session",
+      },
+      createAssistantError(undefined, "Recovered."),
+      createResultMessage({
+        subtype: "success",
+        stop_reason: "end_turn",
+        is_error: false,
+        result: "Recovered.",
+      }),
+    ]);
+
+    await agent.prompt({
+      sessionId: "test-session",
+      prompt: [{ type: "text", text: "test" }],
+    });
+    const warning = updates
+      .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
+      .find(Boolean);
+
+    expect(warning).toEqual(
+      expect.objectContaining({
+        category: "connection",
+        severity: "warning",
+        title: "Reconnecting to Claude, attempt 2 of 5.",
+        actions: [],
+      }),
+    );
+    expect(agent.sessions["test-session"].sessionFailureState.active.has(warning.id)).toBe(false);
+  });
+
   it.each([
     ["missing envelope", {}],
     ["missing capability", { _meta: { jetbrains: { air: { version: 1, capabilities: [] } } } }],
@@ -4087,12 +4541,13 @@ describe("stop reason propagation", () => {
   });
 
   it.each([
-    ["authentication_failed", "auth_required", false],
-    ["billing_error", "quota_exhausted", false],
-    ["overloaded", "overloaded", true],
-    ["invalid_request", "bad_request", false],
-    ["max_output_tokens", "context_exhausted", false],
-  ] as const)("maps SDK error %s to %s", async (sdkError, expectedCategory, retryable) => {
+    ["authentication_failed", "access"],
+    ["billing_error", "limit"],
+    ["rate_limit", "limit"],
+    ["overloaded", "service"],
+    ["invalid_request", "request"],
+    ["max_output_tokens", "limit"],
+  ] as const)("maps SDK error %s to broad category %s", async (sdkError, expectedCategory) => {
     const updates: SessionNotification[] = [];
     const agent = new ClaudeAcpAgent(
       {
@@ -4104,7 +4559,41 @@ describe("stop reason propagation", () => {
     );
     (agent as any).clientCapabilities = airSessionFailureCapabilities;
     injectSession(agent, [
-      createAssistantError(sdkError),
+      createAssistantError(sdkError, "Claude request failed."),
+      createResultMessage({
+        subtype: "success",
+        stop_reason: "end_turn",
+        is_error: true,
+        result: "Claude request failed.",
+      }),
+    ]);
+
+    const response = await agent.prompt({
+      sessionId: "test-session",
+      prompt: [{ type: "text", text: "test" }],
+    });
+    expect(sessionFailureFromResponse(response)).toEqual(
+      expect.objectContaining({
+        category: expectedCategory,
+        severity: "error",
+        title: "Claude request failed.",
+      }),
+    );
+    expect(JSON.stringify(updates)).not.toContain("sessionFailure");
+    expect(JSON.stringify(updates)).not.toContain("Claude request failed.");
+  });
+
+  it("classifies a live synthetic spend limit as exhausted quota", async () => {
+    const updates: SessionNotification[] = [];
+    const agent = new ClaudeAcpAgent(
+      {
+        sessionUpdate: async (update: SessionNotification) => updates.push(update),
+      } as unknown as AcpClient,
+      { log: () => {}, error: () => {} },
+    );
+    (agent as any).clientCapabilities = airSessionFailureCapabilities;
+    injectSession(agent, [
+      createUsageLimitAssistantError(),
       createResultMessage({
         subtype: "success",
         stop_reason: "end_turn",
@@ -4117,16 +4606,47 @@ describe("stop reason propagation", () => {
       sessionId: "test-session",
       prompt: [{ type: "text", text: "test" }],
     });
+
     expect(sessionFailureFromResponse(response)).toEqual(
-      expect.objectContaining({ category: expectedCategory, retryable }),
+      expect.objectContaining({
+        category: "limit",
+        severity: "error",
+        title:
+          "You've hit your individual spend limit · run /usage-credits to ask your admin for a higher limit",
+        actions: [],
+      }),
     );
-    expect(JSON.stringify(updates)).not.toContain("sessionFailure");
+    expect(JSON.stringify(updates)).not.toContain("agent_message_chunk");
+  });
+
+  it("preserves live usage-limit prose for clients without typed failures", async () => {
+    const updates: SessionNotification[] = [];
+    const agent = new ClaudeAcpAgent(
+      {
+        sessionUpdate: async (update: SessionNotification) => updates.push(update),
+      } as unknown as AcpClient,
+      { log: () => {}, error: () => {} },
+    );
+    injectSession(agent, [
+      createUsageLimitAssistantError(),
+      createResultMessage({
+        subtype: "success",
+        stop_reason: "end_turn",
+        is_error: true,
+        result: "provider detail",
+      }),
+    ]);
+
+    await expect(
+      agent.prompt({ sessionId: "test-session", prompt: [{ type: "text", text: "test" }] }),
+    ).rejects.toThrow("provider detail");
+    expect(JSON.stringify(updates)).toContain("individual spend limit");
   });
 
   it.each([
-    ["error_max_budget_usd", "budget_exhausted"],
-    ["error_max_turns", "provider_error"],
-    ["error_max_structured_output_retries", "provider_error"],
+    ["error_max_budget_usd", "limit"],
+    ["error_max_turns", "limit"],
+    ["error_max_structured_output_retries", "service"],
   ] as const)("maps terminal subtype %s to %s", async (subtype, expectedCategory) => {
     const updates: SessionNotification[] = [];
     const agent = new ClaudeAcpAgent(
@@ -4143,7 +4663,7 @@ describe("stop reason propagation", () => {
         subtype,
         stop_reason: null,
         is_error: true,
-        errors: ["private provider detail"],
+        errors: ["Claude request failed."],
       }),
     ]);
 
@@ -4152,12 +4672,12 @@ describe("stop reason propagation", () => {
       prompt: [{ type: "text", text: "test" }],
     });
     expect(sessionFailureFromResponse(response)).toEqual(
-      expect.objectContaining({ category: expectedCategory }),
+      expect.objectContaining({ category: expectedCategory, title: "Claude request failed." }),
     );
     expect(JSON.stringify(updates)).not.toContain("sessionFailure");
   });
 
-  it("clears auth_required after a successful auth_status without leaking auth output", async () => {
+  it("recovers auth_required internally after a successful auth_status", async () => {
     const updates: SessionNotification[] = [];
     const agent = new ClaudeAcpAgent(
       {
@@ -4169,12 +4689,12 @@ describe("stop reason propagation", () => {
     );
     (agent as any).clientCapabilities = airSessionFailureCapabilities;
     injectSession(agent, [
-      createAssistantError("authentication_failed"),
+      createAssistantError("authentication_failed", "Authentication required."),
       createResultMessage({
         subtype: "success",
         stop_reason: "end_turn",
         is_error: true,
-        result: "private auth detail",
+        result: "Authentication required.",
       }),
       {
         type: "auth_status",
@@ -4191,14 +4711,16 @@ describe("stop reason propagation", () => {
     });
     await agent.sessions["test-session"]?.consumer;
     const active = sessionFailureFromResponse(response);
-    const cleared = updates
-      .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
-      .find(Boolean);
-    expect(active).toEqual(expect.objectContaining({ category: "auth_required", revision: 1 }));
-    expect(cleared).toEqual(
-      expect.objectContaining({ id: active.id, revision: 2, phase: "cleared" }),
+    expect(active).toEqual(
+      expect.objectContaining({
+        category: "access",
+        revision: 1,
+        title: "Authentication required.",
+      }),
     );
-    expect(JSON.stringify({ response, updates })).not.toContain("private");
+    expect(JSON.stringify(updates)).not.toContain("sessionFailure");
+    expect(agent.sessions["test-session"].sessionFailureState.active.has(active.id)).toBe(false);
+    expect(JSON.stringify({ response, updates })).not.toContain("private login token");
   });
 
   it("keeps auth_required active when auth_status reports an error", async () => {
@@ -4213,12 +4735,12 @@ describe("stop reason propagation", () => {
     );
     (agent as any).clientCapabilities = airSessionFailureCapabilities;
     injectSession(agent, [
-      createAssistantError("authentication_failed"),
+      createAssistantError("authentication_failed", "Authentication required."),
       createResultMessage({
         subtype: "success",
         stop_reason: "end_turn",
         is_error: true,
-        result: "private auth detail",
+        result: "Authentication required.",
       }),
       {
         type: "auth_status",
@@ -4236,13 +4758,14 @@ describe("stop reason propagation", () => {
     });
     await agent.sessions["test-session"]?.consumer;
     expect(sessionFailureFromResponse(response)).toEqual(
-      expect.objectContaining({ category: "auth_required", phase: "active" }),
+      expect.objectContaining({ category: "access", severity: "error" }),
     );
     expect(JSON.stringify(updates)).not.toContain("sessionFailure");
-    expect(JSON.stringify({ response, updates })).not.toContain("private");
+    expect(JSON.stringify({ response, updates })).not.toContain("private login token");
+    expect(JSON.stringify({ response, updates })).not.toContain("private login error");
   });
 
-  it("clears the active failure with the same id and a higher revision after recovery", async () => {
+  it("keeps the historical failure record unchanged after recovery", async () => {
     const updates: SessionNotification[] = [];
     const agent = new ClaudeAcpAgent(
       {
@@ -4304,18 +4827,12 @@ describe("stop reason propagation", () => {
       .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
       .filter(Boolean);
     const active = sessionFailureFromResponse(failed);
-    expect(active).toEqual(expect.objectContaining({ revision: 1, phase: "active" }));
-    expect(failures).toHaveLength(1);
-    expect(failures[0]).toEqual(
-      expect.objectContaining({
-        id: active.id,
-        revision: 2,
-        phase: "cleared",
-      }),
-    );
+    expect(active).toEqual(expect.objectContaining({ revision: 1, severity: "error" }));
+    expect(failures).toEqual([]);
+    expect(agent.sessions["test-session"].sessionFailureState.active.has(active.id)).toBe(false);
   });
 
-  it("clears a previous turn failure when the next turn is refused", async () => {
+  it("does not publish a clear record when the next turn is refused", async () => {
     const updates: SessionNotification[] = [];
     const agent = new ClaudeAcpAgent(
       {
@@ -4371,23 +4888,15 @@ describe("stop reason propagation", () => {
       .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
       .filter(Boolean);
     const active = sessionFailureFromResponse(failed);
-    expect(failures).toHaveLength(1);
-    expect(failures[0]).toEqual(
-      expect.objectContaining({ id: active.id, revision: 2, phase: "cleared" }),
-    );
+    expect(failures).toEqual([]);
+    expect(agent.sessions["test-session"].sessionFailureState.active.has(active.id)).toBe(false);
   });
 
-  it("retries a clear whose first delivery failed", async () => {
+  it("does not publish clear records on repeated successful turns", async () => {
     const updates: SessionNotification[] = [];
-    let rejectFirstClear = true;
     const agent = new ClaudeAcpAgent(
       {
         sessionUpdate: async (update: SessionNotification) => {
-          const failure = (update.update._meta as any)?.jetbrains?.air?.sessionFailure;
-          if (failure?.phase === "cleared" && rejectFirstClear) {
-            rejectFirstClear = false;
-            throw new Error("temporary client write failure");
-          }
           updates.push(update);
         },
       } as unknown as AcpClient,
@@ -4444,10 +4953,8 @@ describe("stop reason propagation", () => {
       .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
       .filter(Boolean);
     const active = sessionFailureFromResponse(failed);
-    expect(failures).toHaveLength(1);
-    expect(failures[0]).toEqual(
-      expect.objectContaining({ id: active.id, revision: 2, phase: "cleared" }),
-    );
+    expect(failures).toEqual([]);
+    expect(agent.sessions["test-session"].sessionFailureState.active.has(active.id)).toBe(false);
   });
 
   it("logs loudly when a failure has no active turn to reject", async () => {
@@ -4520,8 +5027,10 @@ describe("stop reason propagation", () => {
     expect(sessionFailureFromResponse(response)).toBeUndefined();
     const failure = updates
       .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
-      .find((candidate) => candidate?.category === "worker_shutdown");
-    expect(failure).toEqual(expect.objectContaining({ phase: "active", revision: 1 }));
+      .find((candidate) => candidate?.title === "The Claude worker is shutting down.");
+    expect(failure).toEqual(
+      expect.objectContaining({ category: "connection", severity: "error", revision: 1 }),
+    );
   });
 
   it("returns an active-turn worker shutdown on PromptResponse only at live tail", async () => {
@@ -4576,9 +5085,9 @@ describe("stop reason propagation", () => {
     const response = await prompt;
     const failure = sessionFailureFromResponse(response);
     expect(failure).toEqual(
-      expect.objectContaining({ category: "worker_shutdown", phase: "active", revision: 1 }),
+      expect.objectContaining({ category: "connection", severity: "error", revision: 1 }),
     );
-    expect(failure).toHaveProperty("turnId");
+    expect(failure).not.toHaveProperty("turnId");
     expect(JSON.stringify(updates)).not.toContain("sessionFailure");
   });
 
@@ -4613,8 +5122,10 @@ describe("stop reason propagation", () => {
     expect(sessionFailureFromResponse(response)).toBeUndefined();
     const failure = updates
       .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
-      .find((candidate) => candidate?.category === "worker_shutdown");
-    expect(failure).toEqual(expect.objectContaining({ phase: "active", revision: 1 }));
+      .find((candidate) => candidate?.title === "The Claude worker is shutting down.");
+    expect(failure).toEqual(
+      expect.objectContaining({ category: "connection", severity: "error", revision: 1 }),
+    );
     expect(failure).not.toHaveProperty("turnId");
   });
 
@@ -4704,13 +5215,13 @@ describe("stop reason propagation", () => {
       await consumer;
       return updates
         .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
-        .find((candidate) => candidate?.category === "worker_shutdown");
+        .find((candidate) => candidate?.title === "The Claude worker is shutting down.");
     };
 
     const first = await runWorkerTail();
     const restarted = await runWorkerTail();
-    expect(first).toEqual(expect.objectContaining({ revision: 1, phase: "active" }));
-    expect(restarted).toEqual(expect.objectContaining({ revision: 1, phase: "active" }));
+    expect(first).toEqual(expect.objectContaining({ revision: 1, severity: "error" }));
+    expect(restarted).toEqual(expect.objectContaining({ revision: 1, severity: "error" }));
     expect(restarted.id).not.toBe(first.id);
   });
 
@@ -4750,8 +5261,9 @@ describe("stop reason propagation", () => {
     });
     expect(sessionFailureFromResponse(response)).toEqual(
       expect.objectContaining({
-        category: "transport_lost",
-        retryable: false,
+        category: "connection",
+        severity: "error",
+        title: "The connection to Claude was lost.",
         actions: ["new_session"],
       }),
     );
@@ -5023,25 +5535,55 @@ describe("model refusal fallback handling", () => {
 
     const advisory = updates
       .map((u: any) => u._meta?.jetbrains?.air?.sessionFailure)
-      .find((record: any) => record?.category === "advisory");
+      .find((record: any) => record?.severity === "warning");
     expect(advisory).toEqual(
       expect.objectContaining({
-        category: "advisory",
+        category: "unknown",
         severity: "warning",
-        phase: "active",
-        source: "claude",
-        retryable: false,
         actions: [],
       }),
     );
     // Its own wording, carried through instead of the canned per-category message.
-    expect(advisory.safeMessage).toContain("claude-fable-5");
-    expect(advisory.safeMessage).toContain("claude-opus-4-8");
-    expect(advisory.safeMessage).toContain("(cyber)");
+    expect(advisory.title).toContain("claude-fable-5");
+    expect(advisory.title).toContain("claude-opus-4-8");
+    expect(advisory.title).toContain("(cyber)");
     // No markdown lead-in: the banner supplies the severity, so the text must not fake one.
-    expect(advisory.safeMessage).not.toContain("**");
+    expect(advisory.title).not.toContain("**");
     // Its own id namespace, so it never collides with a turn's error record.
     expect(advisory.id).toContain(":notice:");
+    expect(
+      updates
+        .map((u: any) => u._meta?.jetbrains?.air?.sessionFailure)
+        .filter((record: any) => record?.id === advisory.id),
+    ).toEqual([advisory]);
+  });
+
+  it("puts only a genuinely long model fallback explanation in details", async () => {
+    const { agent, sessionUpdate } = createCapturingAgent();
+    await agent.initialize({
+      protocolVersion: 1,
+      clientCapabilities: {
+        _meta: { jetbrains: { air: { version: 1, capabilities: ["sessionFailure"] } } },
+      },
+    });
+    const explanation = "Long provider explanation. ".repeat(20);
+    injectGeneratorSession(
+      agent,
+      makeGenerator([
+        refusalFallbackMessage({ api_refusal_explanation: explanation }),
+        successResult(),
+      ]),
+      modelStateOverrides,
+    );
+
+    await agent.prompt({ sessionId: "test-session", prompt: [{ type: "text", text: "test" }] });
+
+    const advisory = sessionUpdate.mock.calls
+      .map((call: any[]) => (call[0] as { update: any }).update)
+      .map((update: any) => update._meta?.jetbrains?.air?.sessionFailure)
+      .find((record: any) => record?.severity === "warning");
+    expect(advisory.title).not.toContain(explanation);
+    expect(advisory.details).toBe(explanation);
   });
 
   it("tracks the raw model id when the fallback model is not among the options", async () => {
@@ -5521,6 +6063,7 @@ describe("session/close", () => {
       emittedAssistantText: false,
       owedTrailingIdles: 0,
       messageIdToUuid: new Map(),
+      sessionFailureState: { epoch: randomUUID(), revisions: new Map(), active: new Map() },
     };
     return agent.sessions[sessionId]!;
   }
@@ -5614,6 +6157,7 @@ describe("session/delete", () => {
       emittedAssistantText: false,
       owedTrailingIdles: 0,
       messageIdToUuid: new Map(),
+      sessionFailureState: { epoch: randomUUID(), revisions: new Map(), active: new Map() },
     };
     return agent.sessions[sessionId]!;
   }
@@ -5724,6 +6268,7 @@ describe("getOrCreateSession param change detection", () => {
       emittedAssistantText: false,
       owedTrailingIdles: 0,
       messageIdToUuid: new Map(),
+      sessionFailureState: { epoch: randomUUID(), revisions: new Map(), active: new Map() },
     };
     return agent.sessions[sessionId]!;
   }
@@ -8582,6 +9127,7 @@ describe("post-error recovery", () => {
       emittedAssistantText: false,
       owedTrailingIdles: 0,
       messageIdToUuid: new Map(),
+      sessionFailureState: { epoch: randomUUID(), revisions: new Map(), active: new Map() },
     };
     return { interrupt };
   }
@@ -10742,11 +11288,11 @@ describe("deferred settlement for live background subagents (issues #864/#866)",
     await agent.sessions["test-session"]?.consumer;
     const failure = updates
       .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
-      .find((candidate) => candidate?.category === "transport_lost");
+      .find((candidate) => candidate?.title === "The connection to Claude was lost.");
     expect(failure).toEqual(
       expect.objectContaining({
-        phase: "active",
-        retryable: false,
+        category: "connection",
+        severity: "error",
         actions: ["new_session"],
       }),
     );
@@ -10802,11 +11348,11 @@ describe("deferred settlement for live background subagents (issues #864/#866)",
     await agent.sessions["test-session"]?.consumer;
     const failure = updates
       .map((update) => (update.update._meta as any)?.jetbrains?.air?.sessionFailure)
-      .find((candidate) => candidate?.category === "worker_shutdown");
+      .find((candidate) => candidate?.title === "The Claude worker is shutting down.");
     expect(failure).toEqual(
       expect.objectContaining({
-        phase: "active",
-        retryable: false,
+        category: "connection",
+        severity: "error",
         actions: ["new_session"],
       }),
     );
@@ -12360,6 +12906,7 @@ describe("session/cancel wedge recovery (issue #680)", () => {
       emittedAssistantText: false,
       owedTrailingIdles: 0,
       messageIdToUuid: new Map(),
+      sessionFailureState: { epoch: randomUUID(), revisions: new Map(), active: new Map() },
     };
     return { interrupt };
   }
@@ -13796,6 +14343,7 @@ describe("agent selection config option", () => {
         emittedAssistantText: false,
         owedTrailingIdles: 0,
         messageIdToUuid: new Map(),
+        sessionFailureState: { epoch: randomUUID(), revisions: new Map(), active: new Map() },
       };
       return { session: agent.sessions[sessionId]!, applyFlagSettings };
     }
diff --git a/src/tests/fixtures/usage-limit-session.jsonl b/src/tests/fixtures/usage-limit-session.jsonl
new file mode 100644
index 00000000..6e67ef53
--- /dev/null
+++ b/src/tests/fixtures/usage-limit-session.jsonl
@@ -0,0 +1,3 @@
+{"type":"user","uuid":"11111111-1111-4111-8111-111111111111","parentUuid":null,"sessionId":"aaaaaaaa-aaaa-4aaa-8aaa-aaaaaaaaaaaa","timestamp":"2026-01-01T00:00:00.000Z","message":{"role":"user","content":[{"type":"text","text":"Create a short HTML page"}]}}
+{"type":"assistant","uuid":"22222222-2222-4222-8222-222222222222","parentUuid":"11111111-1111-4111-8111-111111111111","sessionId":"aaaaaaaa-aaaa-4aaa-8aaa-aaaaaaaaaaaa","timestamp":"2026-01-01T00:00:01.000Z","error":"rate_limit","isApiErrorMessage":true,"message":{"id":"msg_usage_limit","type":"message","role":"assistant","model":"<synthetic>","content":[{"type":"text","text":"You've hit your individual spend limit · run /usage-credits to ask your admin for a higher limit"}],"stop_reason":"stop_sequence","stop_sequence":null,"usage":{"input_tokens":0,"output_tokens":0,"cache_read_input_tokens":0,"cache_creation_input_tokens":0}}}
+{"type":"assistant","uuid":"33333333-3333-4333-8333-333333333333","parentUuid":"22222222-2222-4222-8222-222222222222","sessionId":"aaaaaaaa-aaaa-4aaa-8aaa-aaaaaaaaaaaa","timestamp":"2026-01-01T00:00:02.000Z","message":{"id":"msg_local_command","type":"message","role":"assistant","model":"<synthetic>","content":[{"type":"text","text":"No response requested."}],"stop_reason":"stop_sequence","stop_sequence":null,"usage":{"input_tokens":0,"output_tokens":0,"cache_read_input_tokens":0,"cache_creation_input_tokens":0}}}