Random Instant Serverless Function Timeouts - node.js

Question

We've been dealing with this issue in our t3 application for over a week now. Here is the error we are getting in the Vercel function logs: 
START RequestId: 3e875969-afce-4409-a7ae-96efc99ff603 Version: $LATEST 2023-01-31T13:43:45.065Z d22a6e7d-0ef6-4aa2-828e-ab70ceb99f02 ERROR Unhandled Promise Rejection  {\"errorType\":\"Runtime.UnhandledPromiseRejection\",\"errorMessage\":\"Error: timeout of 3000ms exceeded\",\"trace\":[\"Runtime.UnhandledPromiseRejection: Error: timeout of 3000ms exceeded\",\" at process.<anonymous> (file:///var/runtime/index.mjs:1194:17)\",\" at process.emit (node:events:525:35)\",\" at process.emit (node:domain:489:12)\",\" at emit (node:internal/process/promises:149:20)\",\" at processPromiseRejections (node:internal/process/promises:283:27)\",\" at process.processTicksAndRejections (node:internal/process/task_queues:96:32)\"]} [ERROR] [1675172625066] LAMBDA_RUNTIME Failed to post handler success response. Http response code: 400. RequestId: 3e875969-afce-4409-a7ae-96efc99ff603 Error: Runtime exited without providing a reason Runtime.ExitError END RequestId: 3e875969-afce-4409-a7ae-96efc99ff603 REPORT RequestId: 3e875969-afce-4409-a7ae-96efc99ff603. Duration: 12.50 ms Billed Duration: 13 ms Memory Size: 1024 MB Max Memory Used: 143 MB"
This only happens to Vercel deployed branches.Notice how it says that it is a 3000ms timeout error but the duration is only 12.50ms.
More details:
All necessary variables (like required user id's for API calls) are provided
The failing API calls succeed most of the time but about 1/5 times they fail.
Includes all our API calls
Example failing API call:
import type { NextApiRequest, NextApiResponse } from "next";
import { prisma } from "../../../server/db/client";
export default async function handler(  
req: NextApiRequest,  res: NextApiResponse) {  
if (req.method === "POST") {    
try {      
const data = JSON.parse(req.body);      
const update = await prisma.user.update({
        where: { id: data.id },
        data: data.data,      
});      
res.json(update);    
} catch (e: any) {      
res.status(500).json({ message: e.message });      
throw new Error("Could't update user:"+ e.message)
    }  
}
}
Note:
The error messages in the catch block are printed nowhere.This is more or less how we call all our serverless functions:
async function updateUserCurrentInstitution({ userId, institutionId }) {  
const response = await fetch(api.updateUser, {
    method: "POST",
    body: JSON.stringify({
      id: userId,
      data: {
        currentInstitution: institutionId,
      },
    }),
  });
  if (!response.ok) {
    throw new Error(response.statusText);
  }
  return response;
}
Any help would be greatly appreciated !