OK- - -the diverter pin is in the "out" position, meaning that the engine is set up for "bypass" filtering- - - -a small volume of oil is diverted through a restrictor orfice and filtered, then it drains back into the oil pan. The majority of the oil goes to the engine to lubricate and cool it. Eventually, all the oil gets filtrered, and the filtration is actually more effective than running a large volume of oil quickly through filter media that's open-weave enough to pass enough volume to lube the engine. Some industrial engines run both full-flow and bypass filters.
Jerry
