Skaven characters with this rule can refuse a challenge with no loss of honour. Other races see such acts as cowardly, but Skaven view a commander scampering to safety and dooming those underneath him as a leader's natural right.
Source: Warhammer Fantasy: 7th Edition
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If a Skaven character refuses a challenge, the model is placed in the back rank as normal, however, the unit may still use the Skaven character's Ld or Battle Standard ability even after the character has been moved to the back.