Tony H asked about a use case for LRL: one obvious one is a non-reentrant module. Or, as Shmuel mentioned, it might have been needed for cases where there is no binder support for fullword immediate relocatable expressions.
As to the OP's actual question, there are limited choices that come to mind -- the code was not actually running on a z10 or later machine; the OP says "not the case". -- If this is VM perhaps they have done something to ask that VM treat the execution environment as an older machine. There is the concept of the "virtual architecture level". -- the data shown does not represent what happened -- either it was not a PIC 1 or it was not a PIC 1 at that address. If this is repeatable then it could have been helpful to show some preceding data and have the trace that was shown cover the instruction before as well. Regardless, alignment of the operand is not relevant to the discussion. As pointed out, a misaligned operand would have resulted in a specification exception. Peter Relson z/OS Core Technology Design