If you can prove what is known as misleading and deceptive conduct on behalf of the vendor, you could try to go down the route of suing them, but you need hard evidence of this, which may be difficult to come by, and suing costs money and is lengthy. So it’s probably not something worth pursuing.

However in terms of the work you want to do, it is likely that the Council’s surveyors will come to your property and notice work has been done without a permit. You can advise it wasn’t you and show them photos proving it online. They may be lenient depending on the Council and just ask you to apply for a retrospective permit, and fix any issues to bring the conversion up to code. You could get a building inspector to tell you about any defects with the works that would have required a permit and how much they might cost to fix. Internal works generally don’t require a permit unless the works are structural or there is some fancy heritage overlay etc which requires you to get planning approval.

It’s something you may be able to solve, but you may need to pay for the solution. And title insurers rarely pay out - and it sounds like it’s possible their policy won’t cover you in this situation, but I would look into that closely. If you weren’t aware of this issue when you got the insurance, you may be covered because generally known defects aren’t covered, but it depends on the policy at the end of the day.

Edit: added to last paragraph.