Read the showHighlights config at the Guest level and apply the state there

src/annotator/guest.coffee

@@ -92,7 +92,7 @@ module.exports = class Guest extends Delegator
     this.addPlugin('CrossFrame', cfOptions)
     @crossframe = this.plugins.CrossFrame
 
-    @crossframe.onConnect(=> this.publish('panelReady'))
+    @crossframe.onConnect(=> this._setupInitialState(config))
     this._connectAnnotationSync(@crossframe)
     this._connectAnnotationUISync(@crossframe)
 
@@ -135,6 +135,10 @@ module.exports = class Guest extends Delegator
     return Promise.all([metadataPromise, uriPromise]).then ([metadata, href]) ->
       return {uri: normalizeURI(href, baseURI), metadata}
 
+  _setupInitialState: (config) ->
+    this.publish('panelReady')
+    this.setVisibleHighlights(config.showHighlights == 'always')
+
   _connectAnnotationSync: (crossframe) ->
     this.subscribe 'annotationDeleted', (annotation) =>
       this.detach(annotation)

src/annotator/host.coffee

@@ -51,9 +51,6 @@ module.exports = class Host extends Guest
     app.appendTo(@frame)
 
     this.on 'panelReady', =>
-      # Initialize tool state.
-      this.setVisibleHighlights(config.showHighlights == 'always')
-
       # Show the UI
       @frame.css('display', '')