The one valve that Cherokee1979 has on his water heater has one inlet and two outlets. Normally, these valves work with the tail of the valve stem pointing to the output port that is connected to the input. He stated that valve can be positioned up and to the left,
This indicates that, for a "standard" valve, the input port to the valve is connected to the input of the hot water tank. The valve will work without problems when set to its horizontal position because the cold water feed line to the water heater will be connected to the water heater's input fitting. When the valve is turned vertical, the input to the water heater will be connected to the bypass line, serving no useful purpose.
It does appear that FR installed the valve backwards. This can be verified by doing the following:
1. set the valve to the bypass position. Pressurize the water system with the pump or city water. Turn on a hot water faucet. If there's a continuous flow of water, then the valve is installed correctly because the cold water is getting to the faucet through the bypass pipe. If tihs is true, I'd assume that the "handle" on this valve was installed in the wrong position or that someone is manufacturing these valves with the intent to confuse the installer and end user. You could also examine the valve for a marking that shows the intended direction of water flow through it. Unfortunately, I'd expect that any water flow direction information will be on the bottom or side of the valve facing the water tank, making it almost impossible to see.