[BUG]

Preflight Checklist

• [x] I have searched existing issues and this hasn't been reported yet
• [x] This is a single bug report (please file separate reports for different bugs)
• [x] I am using the latest version of Claude Code

What's Wrong?

Description

When running Claude Code in a project subdirectory that has no .claude/ directory, the settings.json permissions from parent directories are NOT inherited, even though CLAUDE.md and .claude/commands/ ARE inherited.

Environment

• Claude Code version: v2.0.34
• OS: macOS
• Shell: zsh

Directory Structure

What Should Happen?

When starting Claude in ~/Code/ACTIVE/my-project/:

Finds no .claude/ in project
Walks up to ~/Code/.claude/
Uses settings.json from parent
Bash commands run without permission prompts (due to "allow": ["*"])
Hooks trigger (e.g., wr → /works-ready)

Actual Behavior

CLAUDE.md IS inherited (TCC/OCC roles appear)
.claude/commands/ ARE inherited (/works-ready is available)
.claude/settings.json permissions are NOT inherited
Every bash command requires manual approval despite "allow": ["*"]
Hooks do not trigger

Error Messages/Logs

Steps to Reproduce

Create parent structure:

mkdir -p ~/Code/.claude/commands
echo '{"permissions":{"allow":["*"],"defaultMode":"bypassPermissions"}}' > ~/Code/.claude/settings.json

Create project without .claude/:

mkdir -p ~/Code/ACTIVE/test-project
cd ~/Code/ACTIVE/test-project

Start Claude:

claude

Run any bash command - will prompt for permission despite parent config

Claude Model

Opus

Is this a regression?

I don't know

Last Working Version

_No response_

Claude Code Version

opus 4.5

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

iTerm2

Additional Information

_No response_