diff --git a/compiler/src/dotty/tools/dotc/core/Types.scala b/compiler/src/dotty/tools/dotc/core/Types.scala
index 1432c56914ec..777f43931e13 100644
--- a/compiler/src/dotty/tools/dotc/core/Types.scala
+++ b/compiler/src/dotty/tools/dotc/core/Types.scala
@@ -1118,15 +1118,15 @@ object Types {
 
     /** Widen this type and if the result contains embedded union types, replace
      *  them by their joins.
-     *  "Embedded" means: inside intersectons or recursive types, or in prefixes of refined types.
+     *  "Embedded" means: inside type lambdas, intersections or recursive types, or in prefixes of refined types.
      *  If an embedded union is found, we first try to simplify or eliminate it by
      *  re-lubbing it while allowing type parameters to be constrained further.
      *  Any remaining union types are replaced by their joins.
      *
-	   *  For instance, if `A` is an unconstrained type variable, then
-  	 *
-  	 * 	      ArrayBuffer[Int] | ArrayBuffer[A]
-  	 *
+     *  For instance, if `A` is an unconstrained type variable, then
+     *
+     * 	      ArrayBuffer[Int] | ArrayBuffer[A]
+     *
      *  is approximated by constraining `A` to be =:= to `Int` and returning `ArrayBuffer[Int]`
      *  instead of `ArrayBuffer[? >: Int | A <: Int & A]`
      *
@@ -1155,6 +1155,8 @@ object Types {
         tp.derivedRefinedType(tp.parent.widenUnion, tp.refinedName, tp.refinedInfo)
       case tp: RecType =>
         tp.rebind(tp.parent.widenUnion)
+      case tp: HKTypeLambda =>
+        tp.derivedLambdaType(resType = tp.resType.widenUnion)
       case tp =>
         tp
     }
diff --git a/tests/pos/i9479.scala b/tests/pos/i9479.scala
new file mode 100644
index 000000000000..4477722a9051
--- /dev/null
+++ b/tests/pos/i9479.scala
@@ -0,0 +1,10 @@
+trait Applicative[F[_]]
+
+def traverse[F[_]: Applicative, A, B](as: List[A])(f: A => F[B]) = ???
+
+object Test {
+  implicit def eitherApplicative[A]: Applicative[[X] =>> Either[A, X]] = ???
+
+  // Used to fail looking for `Applicative[[X] =>> Right[Nothing, X] | Left[Int, X]]`
+  traverse(List(1, 2))(i => if (true) Right(i) else Left(i))
+}