You have a two-interface bridge and want to enable link error propagation, or you want to propagate errors on a LAN bridge interface to WAN bridge interface and vice versa.
Some ProxySG appliances ship (when ordered) with a network adapter card that can be used as a pass-through adapter or as a Network Interface Card (NIC), depending on the configured mode. If the network adapter mode is set to disabled, the adapter interfaces can be used as NICs or as part of a software bridge.
Enabling Propagate Failure means that the WAN interface is taken down if the LAN interface is down. The appliance will also propagate other link related errors.