diff --git a/resource_customizations/policy/PodDisruptionBudget/health.lua b/resource_customizations/policy/PodDisruptionBudget/health.lua
index afaa61752cb67..594bdd3b897bf 100644
--- a/resource_customizations/policy/PodDisruptionBudget/health.lua
+++ b/resource_customizations/policy/PodDisruptionBudget/health.lua
@@ -7,12 +7,13 @@ hs.message = "Waiting for status"
 if obj.status ~= nil then
   if obj.status.conditions ~= nil then
     for i, condition in ipairs(obj.status.conditions) do
-      if condition.status == "False" then
+      -- InsufficientPods can have valid use cases
+      -- See a discussion in https://github.com/argoproj/argo-cd/issues/20171 for more details
+      if condition.status == "False" and condition.reason ~= "InsufficientPods" then
         hs.status = "Degraded"
         hs.message = "PodDisruptionBudget has " .. condition.reason
         return hs
-      end
-      if condition.status == "True" then
+      else
         hs.status = "Healthy"
         hs.message = "PodDisruptionBudget has " .. condition.reason
       end
diff --git a/resource_customizations/policy/PodDisruptionBudget/health_test.yaml b/resource_customizations/policy/PodDisruptionBudget/health_test.yaml
index 3ad31b60186ee..817c26a4c3092 100644
--- a/resource_customizations/policy/PodDisruptionBudget/health_test.yaml
+++ b/resource_customizations/policy/PodDisruptionBudget/health_test.yaml
@@ -9,5 +9,5 @@ tests:
   inputPath: testdata/progressing.yaml
 - healthStatus:
     status: Degraded
-    message: 'PodDisruptionBudget has InsufficientPods'
+    message: 'PodDisruptionBudget has SyncFailed'
   inputPath: testdata/degraded.yaml
diff --git a/resource_customizations/policy/PodDisruptionBudget/testdata/degraded.yaml b/resource_customizations/policy/PodDisruptionBudget/testdata/degraded.yaml
index 2c2a854e8bc52..1a95f19597e0d 100644
--- a/resource_customizations/policy/PodDisruptionBudget/testdata/degraded.yaml
+++ b/resource_customizations/policy/PodDisruptionBudget/testdata/degraded.yaml
@@ -16,6 +16,12 @@ status:
       reason: InsufficientPods
       status: "False"
       type: DisruptionAllowed
+    - lastTransitionTime: "2024-09-06T18:29:06Z"
+      message: ""
+      observedGeneration: 2
+      reason: SyncFailed
+      status: "False"
+      type: DisruptionAllowed
   currentHealthy: 2
   desiredHealthy: 3
   disruptionsAllowed: 0