diff --git a/.cursor-plugin/plugin.json b/.cursor-plugin/plugin.json
index f8fb6f0..584ce68 100644
--- a/.cursor-plugin/plugin.json
+++ b/.cursor-plugin/plugin.json
@@ -2,7 +2,7 @@
   "name": "axonflow",
   "displayName": "AxonFlow Governance",
   "description": "Policy enforcement, PII detection, and audit trails for Cursor. Automatically evaluates governed tool inputs against 80+ governance policies, scans outputs for sensitive data, and records every decision in a compliance-grade audit trail. Self-hosted via Docker — all data stays on your infrastructure.",
-  "version": "0.2.0",
+  "version": "0.3.0",
   "author": {
     "name": "AxonFlow",
     "email": "hello@getaxonflow.com",
diff --git a/CHANGELOG.md b/CHANGELOG.md
index 118da5e..8fb6aef 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -1,6 +1,10 @@
 # Changelog
 
-## [Unreleased]
+## [0.3.0] - 2026-04-09
+
+### Changed
+
+- **Hook fail-open/fail-closed hardening (issue #1545 Direction 3).** `scripts/pre-tool-check.sh` now distinguishes curl exit code (network failure) from HTTP success with an error body. Fail-closed (exit 2, block tool) only on operator-fixable JSON-RPC errors: auth failures (-32001), method-not-found (-32601), and invalid-params (-32602). Fail-open (exit 0, allow) on everything else: curl timeouts/DNS failures/connection refused, empty response, server-internal errors (-32603), parse errors (-32700), and unknown error codes. Prevents transient governance infrastructure issues from blocking legitimate dev workflows while still catching broken configurations.
 
 ### Security
 
diff --git a/scripts/pre-tool-check.sh b/scripts/pre-tool-check.sh
index b51a469..50704c3 100755
--- a/scripts/pre-tool-check.sh
+++ b/scripts/pre-tool-check.sh
@@ -85,8 +85,12 @@ if [ -z "$STATEMENT" ] || [ "$STATEMENT" = "null" ] || [ "$STATEMENT" = "{}" ];
   exit 0
 fi
 
-# Call AxonFlow check_policy via MCP server
-RESPONSE=$(curl -s --max-time "$REQUEST_TIMEOUT_SECONDS" -X POST "${ENDPOINT}/api/v1/mcp-server" \
+# Call AxonFlow check_policy via MCP server.
+#
+# Issue #1545 Direction 3: fail OPEN on any network-level failure (timeout,
+# DNS failure, connection refused, 5xx). Only auth/config errors reported
+# by AxonFlow fail closed (see the JSONRPC_ERROR handling below).
+RESPONSE=$(curl -sS --max-time "$REQUEST_TIMEOUT_SECONDS" -X POST "${ENDPOINT}/api/v1/mcp-server" \
   -H "Content-Type: application/json" \
   -H "Accept: application/json" \
   "${AUTH_HEADER[@]}" \
@@ -105,25 +109,37 @@ RESPONSE=$(curl -s --max-time "$REQUEST_TIMEOUT_SECONDS" -X POST "${ENDPOINT}/ap
           operation: "execute"
         }
       }
-    }')" 2>/dev/null || echo "")
+    }')" 2>/dev/null)
+CURL_EXIT=$?
 
-# If AxonFlow is unreachable (empty response = network failure), fail-open
-if [ -z "$RESPONSE" ]; then
+# Any curl-level failure — timeout, DNS failure, connection refused, TCP
+# reset — fails open. The only reason to fail closed is a well-formed
+# auth/config error from AxonFlow itself, handled below.
+if [ "$CURL_EXIT" -ne 0 ] || [ -z "$RESPONSE" ]; then
   exit 0
 fi
 
-# Check for JSON-RPC error responses (auth failure, server error, etc.)
-# Fail CLOSED on auth/config errors to prevent silent governance bypass.
+# Check for JSON-RPC error responses and apply the fail-open / fail-closed
+# policy from issue #1545 Direction 3:
+#
+#   Auth errors (-32001):       BLOCK — operator must fix AXONFLOW_AUTH
+#   Method not found (-32601):  BLOCK — plugin version mismatch with agent
+#   Invalid params (-32602):    BLOCK — plugin bug, operator should upgrade
+#   Parse errors (-32700):      ALLOW — transient
+#   Internal errors (-32603):   ALLOW — server-side fault, not operator's
+#   Everything else:            ALLOW — unknown failure, default to allow
 JSONRPC_ERROR=$(echo "$RESPONSE" | jq -r '.error.message // empty' 2>/dev/null || echo "")
 if [ -n "$JSONRPC_ERROR" ]; then
   JSONRPC_CODE=$(echo "$RESPONSE" | jq -r '.error.code // 0' 2>/dev/null || echo "0")
-  # Auth errors (-32001) and internal errors (-32603) = block
-  # Parse errors (-32700) = allow (could be transient)
-  if [ "$JSONRPC_CODE" != "-32700" ]; then
-    echo "AxonFlow governance error: ${JSONRPC_ERROR}. Fix AxonFlow configuration to restore tool access." >&2
-    exit 2
-  fi
-  exit 0
+  case "$JSONRPC_CODE" in
+    -32001|-32601|-32602)
+      echo "AxonFlow governance blocked: ${JSONRPC_ERROR} (code ${JSONRPC_CODE}). Fix AxonFlow configuration to restore tool access." >&2
+      exit 2
+      ;;
+    *)
+      exit 0
+      ;;
+  esac
 fi
 
 # Parse the MCP response to get the tool result
diff --git a/tests/test-hooks.sh b/tests/test-hooks.sh
index 22611e9..fab513a 100755
--- a/tests/test-hooks.sh
+++ b/tests/test-hooks.sh
@@ -172,7 +172,7 @@ else
     STDERR_OUT=$(cat "$STDERR_FILE")
     rm -f "$STDERR_FILE"
     assert_eq "Exit code is 2 (block)" "2" "$EXIT_CODE"
-    assert_contains "Has governance error on stderr" "$STDERR_OUT" "governance error"
+    assert_contains "Has governance blocked on stderr" "$STDERR_OUT" "governance blocked"
 fi
 
 echo ""