diff --git a/packages/adapters/pi-local/src/server/execute.ts b/packages/adapters/pi-local/src/server/execute.ts
index c7eb61a2..22d6d1b9 100644
--- a/packages/adapters/pi-local/src/server/execute.ts
+++ b/packages/adapters/pi-local/src/server/execute.ts
@@ -451,13 +451,15 @@ export async function execute(ctx: AdapterExecutionContext): Promise<AdapterExec
 
     const stderrLine = firstNonEmptyLine(attempt.proc.stderr);
     const rawExitCode = attempt.proc.exitCode;
-    const fallbackErrorMessage = stderrLine || `Pi exited with code ${rawExitCode ?? -1}`;
+    const parsedError = attempt.parsed.errors.find((error) => error.trim().length > 0) ?? "";
+    const effectiveExitCode = (rawExitCode ?? 0) === 0 && parsedError ? 1 : rawExitCode;
+    const fallbackErrorMessage = parsedError || stderrLine || `Pi exited with code ${rawExitCode ?? -1}`;
 
     return {
-      exitCode: rawExitCode,
+      exitCode: effectiveExitCode,
       signal: attempt.proc.signal,
       timedOut: false,
-      errorMessage: (rawExitCode ?? 0) === 0 ? null : fallbackErrorMessage,
+      errorMessage: (effectiveExitCode ?? 0) === 0 ? null : fallbackErrorMessage,
       usage: {
         inputTokens: attempt.parsed.usage.inputTokens,
         outputTokens: attempt.parsed.usage.outputTokens,
diff --git a/packages/adapters/pi-local/src/server/parse.test.ts b/packages/adapters/pi-local/src/server/parse.test.ts
index 6a3eef4d..34ef8b93 100644
--- a/packages/adapters/pi-local/src/server/parse.test.ts
+++ b/packages/adapters/pi-local/src/server/parse.test.ts
@@ -209,6 +209,57 @@ describe("parsePiJsonl", () => {
     expect(parsed.usage.cachedInputTokens).toBe(25);
     expect(parsed.usage.costUsd).toBe(0.003);
   });
+
+  it("surfaces failed auto-retry exhaustion as an error", () => {
+    const stdout = [
+      JSON.stringify({
+        type: "auto_retry_end",
+        success: false,
+        attempt: 3,
+        finalError: "Cloud Code Assist API error (429): RESOURCE_EXHAUSTED",
+      }),
+    ].join("\n");
+
+    const parsed = parsePiJsonl(stdout);
+    expect(parsed.errors).toEqual(["Cloud Code Assist API error (429): RESOURCE_EXHAUSTED"]);
+  });
+
+  it("does not treat successful auto-retry as an error", () => {
+    const stdout = [
+      JSON.stringify({
+        type: "auto_retry_end",
+        success: true,
+        attempt: 2,
+      }),
+    ].join("\n");
+
+    const parsed = parsePiJsonl(stdout);
+    expect(parsed.errors).toEqual([]);
+  });
+
+  it("surfaces standalone error events", () => {
+    const stdout = [
+      JSON.stringify({
+        type: "error",
+        message: "Connection to model provider lost",
+      }),
+    ].join("\n");
+
+    const parsed = parsePiJsonl(stdout);
+    expect(parsed.errors).toEqual(["Connection to model provider lost"]);
+  });
+
+  it("ignores error events with empty messages", () => {
+    const stdout = [
+      JSON.stringify({
+        type: "error",
+        message: "",
+      }),
+    ].join("\n");
+
+    const parsed = parsePiJsonl(stdout);
+    expect(parsed.errors).toEqual([]);
+  });
 });
 
 describe("isPiUnknownSessionError", () => {
diff --git a/packages/adapters/pi-local/src/server/parse.ts b/packages/adapters/pi-local/src/server/parse.ts
index 3ba50d8b..5ab0d4cd 100644
--- a/packages/adapters/pi-local/src/server/parse.ts
+++ b/packages/adapters/pi-local/src/server/parse.ts
@@ -76,6 +76,15 @@ export function parsePiJsonl(stdout: string): ParsedPiOutput {
       continue;
     }
 
+    if (eventType === "auto_retry_end") {
+      const succeeded = event.success === true;
+      if (!succeeded) {
+        const finalError = asString(event.finalError, "").trim();
+        result.errors.push(finalError || "Pi exhausted automatic retries without producing a response.");
+      }
+      continue;
+    }
+
     // Turn lifecycle
     if (eventType === "turn_start") {
       continue;
@@ -145,6 +154,14 @@ export function parsePiJsonl(stdout: string): ParsedPiOutput {
       continue;
     }
 
+    if (eventType === "error") {
+      const message = asString(event.message, "").trim();
+      if (message) {
+        result.errors.push(message);
+      }
+      continue;
+    }
+
     // Tool execution
     if (eventType === "tool_execution_start") {
       const toolCallId = asString(event.toolCallId, "");
diff --git a/server/src/__tests__/pi-local-execute.test.ts b/server/src/__tests__/pi-local-execute.test.ts
new file mode 100644
index 00000000..e0f49a27
--- /dev/null
+++ b/server/src/__tests__/pi-local-execute.test.ts
@@ -0,0 +1,76 @@
+import { describe, expect, it } from "vitest";
+import fs from "node:fs/promises";
+import os from "node:os";
+import path from "node:path";
+import { execute } from "@paperclipai/adapter-pi-local/server";
+
+async function writeFakePiCommand(commandPath: string): Promise<void> {
+  const script = `#!/usr/bin/env node
+if (process.argv.includes("--list-models")) {
+  console.log("provider  model");
+  console.log("google    gemini-3-flash-preview");
+  process.exit(0);
+}
+console.log(JSON.stringify({ type: "agent_start" }));
+console.log(JSON.stringify({ type: "turn_start" }));
+console.log(JSON.stringify({ type: "turn_end", message: { role: "assistant", content: "" }, toolResults: [] }));
+console.log(JSON.stringify({ type: "agent_end", messages: [] }));
+console.log(JSON.stringify({
+  type: "auto_retry_end",
+  success: false,
+  attempt: 3,
+  finalError: "Cloud Code Assist API error (429): RESOURCE_EXHAUSTED"
+}));
+process.exit(0);
+`;
+  await fs.writeFile(commandPath, script, "utf8");
+  await fs.chmod(commandPath, 0o755);
+}
+
+describe("pi_local execute", () => {
+  it("fails the run when Pi exhausts automatic retries despite exiting 0", async () => {
+    const root = await fs.mkdtemp(path.join(os.tmpdir(), "paperclip-pi-execute-"));
+    const workspace = path.join(root, "workspace");
+    const commandPath = path.join(root, "pi");
+    await fs.mkdir(workspace, { recursive: true });
+    await writeFakePiCommand(commandPath);
+
+    const previousHome = process.env.HOME;
+    process.env.HOME = root;
+
+    try {
+      const result = await execute({
+        runId: "run-pi-quota-exhausted",
+        agent: {
+          id: "agent-1",
+          companyId: "company-1",
+          name: "Pi Agent",
+          adapterType: "pi_local",
+          adapterConfig: {},
+        },
+        runtime: {
+          sessionId: null,
+          sessionParams: null,
+          sessionDisplayId: null,
+          taskKey: null,
+        },
+        config: {
+          command: commandPath,
+          cwd: workspace,
+          model: "google/gemini-3-flash-preview",
+          promptTemplate: "Keep working.",
+        },
+        context: {},
+        authToken: "run-jwt-token",
+        onLog: async () => {},
+      });
+
+      expect(result.exitCode).toBe(1);
+      expect(result.errorMessage).toContain("RESOURCE_EXHAUSTED");
+    } finally {
+      if (previousHome === undefined) delete process.env.HOME;
+      else process.env.HOME = previousHome;
+      await fs.rm(root, { recursive: true, force: true });
+    }
+  });
+});