Here a summary of -ddump-tc-trace for this program (part of test T12427a)

data T where
  T1 :: a -> ((forall b. [b]->[b]) -> Int) -> T

h11 y = case y of T1 _ v -> v

I see this sequence

  {co_awA} {0}:: ((forall b. [b] -> [b]) -> Int)
                                      ~# p_awz[tau:1] (CNonCanonical)

==> Hetero equality gives rise to kind equality
  inert: {co_awG} :: p_awz[tau:1] ~# ((forall b. [b] -> [b]) -> Int |> (TYPE {co_awF})_N)
  work item: {co_awF} :: 'GHC.Types.LiftedRep ~# p_awy[tau:1]
  co_awA := Sym ({co_awG} ; Sym (GRefl nominal ((forall b.[b] -> [b]) -> Int)
                                     (TYPE {co_awF})_N))

==> Swap awF, kick out awG
  work item: {co_awG} :: p_awz[tau:1] ~# ((forall b. [b] -> [b]) -> Int |> (TYPE {co_awF})_N)
  inert (because p_awy is untouchable): 
             {co_awH} :: p_awy[tau:1] ~# 'GHC.Types.LiftedRep
  co_awF := Sym co_awH

==> flatten awG (strange double GRefl)
  inert: {co_awH} :: p_awy[tau:1] ~# 'GHC.Types.LiftedRep
  inert: {co_awI} :: p_awz[tau:1] ~# ((forall b. [b] -> [b]) -> Int |> (TYPE (Sym {co_awH}))_N)
  co_awG := {co_awI} ; (Sym (GRefl nominal ((forall b. [b] -> [b]) -> Int)
                                 (TYPE (Sym {co_awH}))_N)
                       ; GRefl nominal ((forall b. [b] -> [b]) -> Int)
                                 (TYPE {co_awF})_N)
  at this point we also make a derived shadow of awI, for some reason.

Solving stops here, but we float out awI, and awH, and then have another go

  work: {co_awH} :: p_awy[tau:1] ~# 'GHC.Types.LiftedRep
  work: {co_awI} :: p_awz[tau:1] ~# ((forall b. [b] -> [b]) -> Int |> (TYPE (Sym {co_awH}))_N)

==> flatten awI (why?)
  work: {co_awH} :: p_awy[tau:1] ~# 'GHC.Types.LiftedRep
  inert: {co_awJ} :: p_awz[tau:1] ~# ((forall b. [b] -> [b]) -> Int |> (TYPE (Sym {co_awH}))_N)
  co_awI := {co_awJ} ; (Sym (GRefl nominal ((forall b. [b] -> [b]) -> Int)
                                 (TYPE (Sym {co_awH}))_N) ; GRefl nominal ((forall b. [b] -> [b])
                                                                           -> Int)
                                                                (TYPE (Sym {co_awH}))_N)

==> solve awH: p_awy := LiftedRep, kick out awJ
  {co_awJ} :: p_awz[tau:1] ~# ((forall b. [b] -> [b]) -> Int |> (TYPE (Sym {co_awH}))_N)

==> flatten awJ
  co_awJ := {co_awK} ; GRefl nominal ((forall b. [b] -> [b]) -> Int)
                           (TYPE (Sym {co_awH}))_N
  {co_awK} :: p_awz[tau:1] ~# ((forall b. [b] -> [b]) -> Int)

This seems like we are doing too much work, esp the double GRefls. Why did awI get flattened?

It's not a disaster, but pretty heavy handed.