diff --git a/openhands/runtime/impl/docker/docker_runtime.py b/openhands/runtime/impl/docker/docker_runtime.py
index b1a9caa8cf..ecb1386a68 100644
--- a/openhands/runtime/impl/docker/docker_runtime.py
+++ b/openhands/runtime/impl/docker/docker_runtime.py
@@ -121,7 +121,7 @@ class DockerRuntime(ActionExecutionClient):
                     'error',
                     f'Container {self.container_name} not found.',
                 )
-                raise e
+                raise AgentRuntimeDisconnectedError from e
             if self.runtime_container_image is None:
                 if self.base_container_image is None:
                     raise ValueError(
diff --git a/openhands/server/conversation_manager/standalone_conversation_manager.py b/openhands/server/conversation_manager/standalone_conversation_manager.py
index e6503f7d4b..b5efd0f812 100644
--- a/openhands/server/conversation_manager/standalone_conversation_manager.py
+++ b/openhands/server/conversation_manager/standalone_conversation_manager.py
@@ -10,6 +10,7 @@ from openhands.core.exceptions import AgentRuntimeUnavailableError
 from openhands.core.logger import openhands_logger as logger
 from openhands.core.schema.agent import AgentState
 from openhands.events.action import MessageAction
+from openhands.events.observation.agent import AgentStateChangedObservation
 from openhands.events.stream import EventStream, session_exists
 from openhands.server.monitoring import MonitoringListener
 from openhands.server.session.agent_session import WAIT_TIME_BEFORE_CLOSE
@@ -99,6 +100,15 @@ class StandaloneConversationManager(ConversationManager):
         event_stream = await self._get_event_stream(sid)
         if not event_stream:
             return await self.maybe_start_agent_loop(sid, settings, user_id)
+        for event in event_stream.get_events(reverse=True):
+            if isinstance(event, AgentStateChangedObservation):
+                if event.agent_state in (
+                    AgentState.STOPPED.value,
+                    AgentState.ERROR.value,
+                ):
+                    await self.close_session(sid)
+                    return await self.maybe_start_agent_loop(sid, settings, user_id)
+                break
         return event_stream
 
     async def detach_from_conversation(self, conversation: Conversation):
diff --git a/openhands/server/session/agent_session.py b/openhands/server/session/agent_session.py
index 2f71f8e62e..71fba3230d 100644
--- a/openhands/server/session/agent_session.py
+++ b/openhands/server/session/agent_session.py
@@ -175,10 +175,6 @@ class AgentSession:
         if self.security_analyzer is not None:
             await self.security_analyzer.close()
 
-    async def stop_agent_loop_for_error(self):
-        if self.controller is not None:
-            await self.controller.set_agent_state_to(AgentState.ERROR)
-
     def _create_security_analyzer(self, security_analyzer: str | None):
         """Creates a SecurityAnalyzer instance that will be used to analyze the agent actions
 
diff --git a/openhands/server/session/session.py b/openhands/server/session/session.py
index 1fa99f59f7..72b123b41d 100644
--- a/openhands/server/session/session.py
+++ b/openhands/server/session/session.py
@@ -247,7 +247,9 @@ class Session:
     async def _send_status_message(self, msg_type: str, id: str, message: str):
         """Sends a status message to the client."""
         if msg_type == 'error':
-            await self.agent_session.stop_agent_loop_for_error()
+            controller = self.agent_session.controller
+            if controller is not None:
+                await controller.set_agent_state_to(AgentState.ERROR)
         await self.send(
             {'status_update': True, 'type': msg_type, 'id': id, 'message': message}
         )