[BUG] model field in project-level .claude/settings.json not respected by VSCode extension — falls back to Sonnet 4.6

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 model field in a project-level .claude/settings.json is being ignored when using the Claude Code VSCode extension. The session loads with claude-sonnet-4-6 despite the project settings explicitly specifying claude-opus-4-6.

Environment:

Claude Code version: 1.111.0
Platform: macOS (darwin 25.4.0, arm64)
Interface: VSCode native extension
Global settings (~/.claude/settings.json): {} (empty — no override)
Project settings at .claude/settings.json:

{
"model": "claude-opus-4-6",
...
}

Workaround:
Launching from the terminal with claude --model claude-opus-4-6 works correctly.

What Should Happen?

Expected behavior:
Claude Code should use claude-opus-4-6 as specified in the project-level settings, per the documented scope precedence (project > user).

Actual behavior:
The session starts with claude-sonnet-4-6. The injected environment info in the session explicitly confirms the model as Sonnet 4.6 despite the project setting.

Error Messages/Logs

Steps to Reproduce

Steps to reproduce:
Create .claude/settings.json in a project root with "model": "claude-opus-4-6"
Ensure ~/.claude/settings.json is empty ({})
Open the project in VSCode and start a Claude Code session via the extension
Ask Claude which model it is running — it reports Sonnet 4.6

Claude Model

Opus

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

1.111.0

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

Terminal.app (macOS)

Additional Information

_No response_