[BUG] VSCode Chat UI extension does not notify users when connection to server is lost

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?

The Claude Code VSCode Chat UI extension does not inform users when the connection to the Claude API server is lost or experiencing issues. This leads to a poor user experience where users are left wondering whether Claude is processing their request or if the connection has failed.

When connection is lost:

• No visual indication is provided
• The chat UI is stuck in a loading/thinking phase ("Flibbertigibbeting..." etc)
• Users cannot distinguish between:
• Claude processing a complex request
• Connection being lost
• Server-side issues
• The only way to diagnose is to open terminal window to use the CLI (claude command), which shows the connection state

What Should Happen?

When the connection to the Claude API is lost or experiencing issues, the extension should:

1. Display a clear visual indicator (e.g., error message, status bar notification, or icon change)
2. Inform the user that the connection is lost
3. Optionally suggest troubleshooting steps (check internet connection, retry, etc.)
4. Ideally, attempt automatic reconnection and notify when connection is restored

Error Messages/Logs

Steps to Reproduce

1. Open Claude Code in VSCode extension
2. Start a conversation with Claude
3. Disconnect from the server (or experience network issues)
4. Send any prompt in the chat window
5. Observe that chat remains in the loading/thinking state, and no error or disconnection notification appears

Claude Model

None

Is this a regression?

I don't know

Last Working Version

_No response_

Claude Code Version

2.1.19 (Claude Code)

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

VS Code integrated terminal

Additional Information

_No response_