I don't call it a fail - just possibly a little insecurity being around another clothed person.
I too am not sure how I would react today but I'm sure I wouldstrip off. (older, more confident possibly) However, I do recall one occasion quite a few years ago (about 30 years ago) whilst holidaying in Sweden seeing one of my wife's University friends who originated from Scotland and now lives there, we took a trip to a nearby but reasonablysecluded lake.
She asked if I wished to take a dip in the lake (it was early in the season and would have been fairly chilly) I said that I didn't have any swimwear with me (though we did have towels to sit on) and she basically replied, "This is Sweden - no worries about that!" But whilst I considered going for it and having that quick dip, my wife's look and shake of the head quickly discounted that idea.
Sometimes I wonder what she would have said if I had stripped off then. Ifmy wife's friend had stripped off, I would certainly have joined her, despite MOH's looks.
I'm pretty accustomed to being the only naked one in the room, and don't feel that's exhibitionism at all - just people doing their own thing. I have had the experience of a friend coming over, saying "You don't have to dress for me" and then being apparently uncomfortable with it. So intuition has to rule.