No, that setting is not wrong. “Mirrors out” is the proper way to have your mirrors adjusted. Unfortunately, most people do not do this.
You also want to be sure they’re adjusted properly in the vertical plane. A lot of people adjust them so that they can see airplanes and clouds in the sky. You don’t need to see that stuff. Adjust them so that you see the most road possible. The top of the mirror should be at most an inch or two above the horizon, so that you’ll see cars approaching, but will also see cars that are already there.
All that aside, sometimes even the best driver misses stuff. You just learn from it and make sure you’re extra vigilant in those situations going forward. It sounds like this is the decision you’ve made, so I’d say you’re on the right track.
If he was far up enough that his headlights were disappearing from view, or he didn’t have his headlights on, or his side marker lights were burned out, it’s entirely possible that you missed him due to lack of visibility. A lot of people seem to feel that their headlights are magical devices powered by pixie dust that’s very hard to find, and the magic dust will run out if you use them too much, and so they won’t turn them on in the rain, or at dusk/dawn. Could be you fell victim to this.
The CRV has fairly decent visibility, but if he was in just the right spot it’s possible that all of his marker lights were hidden by your body panels. However, there are other clues to watch for. You can see his headlights on the pavement ahead and to the right of your car. Seeing more light than your car emits on the road is a clue that another car is close.
Another thing I like to do is to signal, then wait a few seconds before starting my merge. A lot of people signal and then immediately merge or, even better, get halfway through the merge and then turn their signal on. If you signal and then wait a few beats, that gives the other driver time to recognize that you’re about to move over, which lets him be ready to take evasive action should you mess up and try to merge into him.