Consider these 4 modules as concocted by Csongor.

The wrong instance is selected when you splice in B.me into D.

https://gist.github.com/mpickering/959a95525647802414ab50e8e6ed490c

module A where

class C a where
  foo :: a -> String

instance C Int where
foo _ = "int"

{-# LANGUAGE FlexibleInstances #-}
{-# LANGUAGE TemplateHaskell #-}
{-# LANGUAGE NoMonomorphismRestriction #-}
module B where

import A

import Language.Haskell.TH

instance C a => C [a] where
  foo _ = "list"

me :: Q (TExp ([Int] -> String))
me = [|| foo ||]

{-# LANGUAGE FlexibleInstances #-}
{-# LANGUAGE TemplateHaskell #-}
{-# LANGUAGE NoMonomorphismRestriction #-}
module C where

import A

import Language.Haskell.TH

instance {-# OVERLAPPING #-} C [Int] where
foo _ = "list2"

{-# LANGUAGE TemplateHaskell #-}
{-# LANGUAGE NoMonomorphismRestriction #-}
module D where

import A
import B
import C

main2 = $$(me) [1 :: Int]

>>> main2
"list2"

In B, B.me is created by quoting foo. B.me :: Q (TExp ([Int] -> String)) so in order to type check this quote we need to solve the instance C [Int] which we should do by using the instance defined in B (and A).

In module C we define a different overlapping instance (note that this could be in a completely different library not under our control).

When we then splice B.me into D, the instance from C is used and can be witnessed by printing main2 which shows "list2" rather than "list" as expected.

This is a symptom of the fact that the renamed rather than the typechecked AST is serialised I think.