There’s a couple legit or semi legit reasons.
Stolen or lost devices are by far the most common. Sometimes they’re later recovered by the original user, but they can no longer have the device removed from the list (their account may be deliquent or they may not be in contact with an authorized user). I’ve also heard stories of people who share accounts getting vindictive after breakups – people reporting phones as lost / etc even if they aren’t.
Accounts closed for nonpayment are also flagged, and I’d say it’s legit for the customer to feel entitled to reuse the phone. Phones purchased as prepay devices will also be locked from activation as a non-prepay device (not sure that applies here).
The other situation that occurs to me is if a customer reported the phone as lost, got an insurance replacement, and found it later. They’re obligated to return it to the insurer, so technically it’s fraud to keep it, but I’m sure there’s folks who don’t think Asurion will miss their “freebie” flip phone.