Yes i know people who have. Given my past life there are many reasons. For most it came down to saving your own life, literally.
Two close relatives are not on speaking terms. A few years ago, sister B found out that sister A's husband had told mutual friends years earlier that she (sister B) has a drinking problem, something they believed for the intervening years until the topic arose and she corrected them. She was livid, and called sister A to complain about her husband's behavior. Sister A stuck up for her husband, and that was it. No more friendship. It is sad to watch from the outside because up to then they talked to each other every day and did a lot together. But sister B does have a fiery temper, and sister A's husband is kind of a dumb jerk who sister A has propped up for years, so maybe it was bound to happen. It's hard to figure out why he did such a malicious thing, unless he just misjudged the situation really badly, but even then telling his unfounded opinion to mutual friends as though it was the revealed word was really stupid.
I don't think it's "never a good idea" to cut off communications, sometimes it's a necessity. In this case it might have seemed to sister A that life was too short to have to listen to sister B's blistering comments and recriminations, especially because if she were to believe them or agree with them, she would be going against what her own husband did. I don't think it's a good idea for these two sisters to stop talking, though. In my life I'd reserve that for situations in which someone is personally so rude about me or says things so painful to hear that I couldn't take it. This one is more about the temper of sister B and the martyred attitude of sister A, something they could both drop if they wanted to. They should find a way around it.
I'm currently in such a situation with one of my brothers and very close to it with a sister... He's quite a bit older than me and has always considered himself "the" big brother since our oldest brother passed away at the age of 42 in 1974... This brother has done several things that were very hurtful, but three years ago he called on the phone one night out of the blue and related the contents of a conversation between himself and one of my sisters about me, that was extremely painful to hear.
I could have dealt with that, because neither of them knew what they were talking about and I could have passed their conversation off as misinformation, but he couldn't stop there. He went on to say things that no one should say to another person, ever, let alone a brother to his sister.
I have talked to him a couple of times since this phone call and we even had a family reunion, but the conversations have been very strained. Because he's said so many hurtful things over the years and because of the impact of this last conversation, I had no choice but to severely curtail contact.
I had always hoped that one day we'd be able to work things out, but he's ill now; he's had a stroke and his memory is failing quickly. I'd question, at this point if he even remembers that hurtful conversation. Although nothing can wipe out the hurt, his illness changes a lot and I've never stopped loving him. Our family has always rallied 'round when one is in need and of course, that won't change...