diff --git a/litellm/router_utils/cooldown_handlers.py b/litellm/router_utils/cooldown_handlers.py
index 81bfac2ad19..2be80cd4232 100644
--- a/litellm/router_utils/cooldown_handlers.py
+++ b/litellm/router_utils/cooldown_handlers.py
@@ -54,14 +54,6 @@ def _is_cooldown_required(
         bool: True if a cooldown is required, False otherwise.
     """
     try:
-        ignored_strings = ["APIConnectionError"]
-        if (
-            exception_str is not None
-        ):  # don't cooldown on litellm api connection errors errors
-            for ignored_string in ignored_strings:
-                if ignored_string in exception_str:
-                    return False
-
         if isinstance(exception_status, str):
             if len(exception_status) == 0:
                 return False
diff --git a/tests/test_litellm/router_utils/test_cooldown_handlers.py b/tests/test_litellm/router_utils/test_cooldown_handlers.py
new file mode 100644
index 00000000000..5d2e417f315
--- /dev/null
+++ b/tests/test_litellm/router_utils/test_cooldown_handlers.py
@@ -0,0 +1,91 @@
+"""
+Unit tests for cooldown handler logic in litellm.router_utils.cooldown_handlers
+"""
+
+import os
+import sys
+from unittest.mock import MagicMock
+
+import pytest
+
+sys.path.insert(0, os.path.abspath("../../.."))
+
+import litellm
+from litellm.router_utils.cooldown_handlers import _is_cooldown_required
+
+
+@pytest.fixture
+def mock_router():
+    router = MagicMock()
+    router.allowed_fails = None
+    router.allowed_fails_policy = None
+    return router
+
+
+class TestIsCooldownRequired:
+    """Tests for _is_cooldown_required behavior with connection errors."""
+
+    def test_api_connection_error_triggers_cooldown(self, mock_router):
+        """
+        APIConnectionError (unreachable host) should trigger cooldown so the
+        router can fail over to healthy deployments.
+
+        Regression test for https://github.com/BerriAI/litellm/issues/27362
+        """
+        exception = litellm.APIConnectionError(
+            message="Cannot connect to host example:11434",
+            llm_provider="ollama",
+            model="llama3.1:8b",
+        )
+
+        result = _is_cooldown_required(
+            litellm_router_instance=mock_router,
+            model_id="test_deployment",
+            exception_status=500,
+            exception_str=str(exception),
+        )
+
+        assert result is True
+
+    def test_server_error_triggers_cooldown(self, mock_router):
+        """500-level errors should trigger cooldown."""
+        result = _is_cooldown_required(
+            litellm_router_instance=mock_router,
+            model_id="test_deployment",
+            exception_status=500,
+            exception_str="Internal Server Error",
+        )
+
+        assert result is True
+
+    def test_rate_limit_triggers_cooldown(self, mock_router):
+        """429 errors should trigger cooldown."""
+        result = _is_cooldown_required(
+            litellm_router_instance=mock_router,
+            model_id="test_deployment",
+            exception_status=429,
+            exception_str="Rate limit exceeded",
+        )
+
+        assert result is True
+
+    def test_bad_request_does_not_trigger_cooldown(self, mock_router):
+        """400 errors (except 401, 404, 408, 429) should not trigger cooldown."""
+        result = _is_cooldown_required(
+            litellm_router_instance=mock_router,
+            model_id="test_deployment",
+            exception_status=400,
+            exception_str="Bad Request",
+        )
+
+        assert result is False
+
+    def test_empty_exception_status_does_not_trigger_cooldown(self, mock_router):
+        """Empty string exception status should not trigger cooldown."""
+        result = _is_cooldown_required(
+            litellm_router_instance=mock_router,
+            model_id="test_deployment",
+            exception_status="",
+        )
+
+        assert result is False