GMC Kid, the installation is as you describe. The heater circuit only acts as a bypass if the heater temperature control is moved toward hot. If set to cold, the valve that opens the coolant flow to the heater core will be closed, so coolant will not flow through the loop.
The way you describe the double acting thermostats you are familiar with work the way Tim's does by closing off the bypass when the thermostat opens. The NAPA one does not.
