diff --git a/packages/happy-cli/src/claude/utils/permissionHandler.ts b/packages/happy-cli/src/claude/utils/permissionHandler.ts
index 7ed3db8f26..5d1a088c37 100644
--- a/packages/happy-cli/src/claude/utils/permissionHandler.ts
+++ b/packages/happy-cli/src/claude/utils/permissionHandler.ts
@@ -72,10 +72,11 @@ export class PermissionHandler {
         // Only a concrete mode is pushed: setPermissionMode has no way to say
         // "go back to inheriting", so switching to Default leaves the running
         // query where it is and takes effect on the next one.
-        if (mode !== undefined
+        const mappedMode = mapToClaudeMode(mode);
+        if (mappedMode !== undefined
             && this.setPermissionModeCallback
-            && mapToClaudeMode(previousMode) !== mapToClaudeMode(mode)) {
-            this.setPermissionModeCallback(mapToClaudeMode(mode)).catch((err) => {
+            && mapToClaudeMode(previousMode) !== mappedMode) {
+            this.setPermissionModeCallback(mappedMode).catch((err) => {
                 logger.debug('Failed to sync permission mode via SDK:', err);
             });
         }
diff --git a/packages/happy-cli/src/claude/utils/permissionMode.test.ts b/packages/happy-cli/src/claude/utils/permissionMode.test.ts
index ee7dfbeb4c..a1bf488421 100644
--- a/packages/happy-cli/src/claude/utils/permissionMode.test.ts
+++ b/packages/happy-cli/src/claude/utils/permissionMode.test.ts
@@ -18,10 +18,6 @@ describe('mapToClaudeMode', () => {
     });
 
     describe('Claude modes pass through unchanged', () => {
-        it('passes through default', () => {
-            expect(mapToClaudeMode('default')).toBe('default');
-        });
-
         it('passes through acceptEdits', () => {
             expect(mapToClaudeMode('acceptEdits')).toBe('acceptEdits');
         });
@@ -42,7 +38,7 @@ describe('mapToClaudeMode', () => {
         ];
 
         it('returns a valid Claude mode for every PermissionMode', () => {
-            const validClaudeModes = ['auto', 'default', 'acceptEdits', 'bypassPermissions', 'plan'];
+            const validClaudeModes = ['auto', 'default', 'acceptEdits', 'bypassPermissions', 'plan', undefined];
 
             allModes.forEach(mode => {
                 const result = mapToClaudeMode(mode);
@@ -63,6 +59,24 @@ describe('mapToClaudeMode', () => {
     it('keeps an unset mode unset rather than inventing one', () => {
         expect(mapToClaudeMode(undefined)).toBeUndefined();
     });
+
+    // Regression (#1695): app builds predating the client-side fix send the
+    // literal 'default' with every spawn. Forwarding it produces an explicit
+    // `--permission-mode default` on the Claude command line, and a flag
+    // outranks settings.json — a user whose permissions.defaultMode is 'auto'
+    // silently loses it and is prompted on nearly every tool call. Both wire
+    // spellings of "no override" have to reach the SDK as undefined.
+    it('treats a literal Claude default as no override', () => {
+        expect(mapToClaudeMode('default')).toBeUndefined();
+    });
+
+    // Codex's own ask-first policies still need a concrete mode: for them
+    // "ask" is the pick, not the absence of one, so they must not fall back
+    // to whatever the user configured for Claude.
+    it('still maps the Codex ask-first modes to a literal default', () => {
+        expect(mapToClaudeMode('safe-yolo')).toBe('default');
+        expect(mapToClaudeMode('read-only')).toBe('default');
+    });
 });
 
 describe('resolveInitialClaudePermissionMode with no override', () => {
diff --git a/packages/happy-cli/src/claude/utils/permissionMode.ts b/packages/happy-cli/src/claude/utils/permissionMode.ts
index a40af2736a..aee6736fd9 100644
--- a/packages/happy-cli/src/claude/utils/permissionMode.ts
+++ b/packages/happy-cli/src/claude/utils/permissionMode.ts
@@ -15,18 +15,23 @@ export type ClaudeSdkPermissionMode = NonNullable<QueryOptions['permissionMode']
  * - read-only → default (Claude doesn't support read-only)
  *
  * Claude modes pass through unchanged:
- * - auto, default, acceptEdits, bypassPermissions, plan
+ * - auto, acceptEdits, bypassPermissions, plan
  *
  * `auto` is a first-class mode in the Agent SDK's own PermissionMode union,
  * so it passes straight through rather than being mapped onto `default`.
+ *
+ * Claude's `default` is the one exception: it is the ambient "no override"
+ * value, so it maps to undefined and the SDK is left to apply the user's own
+ * `permissions.defaultMode`. Forwarding the literal would spawn Claude with an
+ * explicit `--permission-mode default`, and a flag outranks the settings file —
+ * a user whose defaultMode is `auto` would be dropped back to prompting. Codex's
+ * safe-yolo and read-only still map to a literal 'default' because for them
+ * asking is the policy that was picked, not the absence of one.
  */
-export function mapToClaudeMode(mode: undefined): undefined;
-export function mapToClaudeMode(mode: PermissionMode): ClaudeSdkPermissionMode;
-export function mapToClaudeMode(mode: PermissionMode | undefined): ClaudeSdkPermissionMode | undefined;
 export function mapToClaudeMode(mode: PermissionMode | undefined): ClaudeSdkPermissionMode | undefined {
     // Undefined is a meaningful value, not a missing one: it is how "Default"
     // reaches the SDK, which then applies Claude's own configuration.
-    if (mode === undefined) {
+    if (mode === undefined || mode === 'default') {
         return undefined;
     }
     const codexToClaudeMap: Record<string, ClaudeSdkPermissionMode> = {
diff --git a/packages/happy-cli/src/daemon/run.ts b/packages/happy-cli/src/daemon/run.ts
index 92f167bd73..e79e1dae15 100644
--- a/packages/happy-cli/src/daemon/run.ts
+++ b/packages/happy-cli/src/daemon/run.ts
@@ -912,9 +912,13 @@ export async function startDaemon(): Promise<void> {
           // Check if process is still alive (signal 0 doesn't kill, just checks)
           process.kill(pid, 0);
         } catch (error) {
-          // Process is dead, remove from tracking
-          logger.debug(`[DAEMON RUN] Removing stale session with PID ${pid} (process no longer exists)`);
-          pidToTrackedSession.delete(pid);
+          // Process is dead. Go through the same path as a child exit so the
+          // session is preserved in `sessionIdToFinishedSession` and stays
+          // resumable — sessions started from a terminal are not our children,
+          // so `onChildExited` never fires for them and dropping them here
+          // silently made them unresumable until the next daemon restart.
+          logger.debug(`[DAEMON RUN] Reaping stale session with PID ${pid} (process no longer exists)`);
+          onChildExited(pid);
         }
       }