Using a paper towel as a splatter shield: Great idea or terrible accident waiting to happen?
This definitely falls into the category of an accident waiting to happen. No flammable materials should ever be used in this manner. Not only is there the danger of the paper catching fire from a heating element or flame, there is also the risk of it catching fire from a pan fire (and consequently making that situation worse).

However, if you want something disposable, a foil sheet works and won't catch fire. Additionally, if you want it vented so steam can escape, you can poke small holes in the foil.