On Erev Shabbat, many people cover pots on the blech or hotplate with towels to retain the heat. This would seem to be justifiable because towels are davar she'aino mosif haval; they do not generate heat and would therefore be permitted to use for hatmana on Erev Shabbat. Nevertheless, Maran rules (257:5) that while the towel itself does not generate heat, the heat of the blech acts in conjunction with the towel to create a status of davar hamosif haval, a heat generating insulation. Accordingly, it would be forbidden on Erev Shabbat to put a towel over pots on a hotplate or blech.
However, the Zechor L'Yishak (Halachic Responsa of R. Yitshak Harari, 18th Century Syria, siman 74) writes that the custom of the Sepharadim was to be lenient in this matter. Hacham Ovadia explains that the custom is justified based on two factors.
First, he cites opinions that Hatmana is not a problem if the food being covered is meant for the next day. Second, the Ramban holds that Hatmana on Erev Shabbat is forbidden only in a case where the pot is placed in the embers. If it's not actually touching the coals, and certainly if the pot is on a blech, where there is no issue of adjusting the heat, there are more leniencies. Based on these opinions, Hacham Ovadia permits covering the pots on a blech with towels on Erev Shabbat.
Hacham Ben Sion Abba Shaul (Israel, 1923-1998) adds that it is advisable to ensure that one side of the pots is not covered. In such a case, it is possible that even Maran would have agreed to be lenient.
Now that we have established that insulating with towels can be permitted, a new question arises: Is it permitted on Shabbat to put challot underneath the towel? Ostensibly, it would be forbidden to do so, as all forms of Hatmana are prohibited on Shabbat itself. Therefore, one must be careful and place the challot on top of the towel.
However, Rabbi Moshe Halevi (Israel, 1961-2001), in his Menuhat Ahaba presents a chidush and says that the halacha of putting challot under the towel will be determined by the intent of the person. If a person placed the challot under the towel for the purpose of utilizing the insulation, it is certainly prohibited. However, if he put the challot under the towel simply because there was no other space available on the blech, then it would be permitted. He compares this to the leniency of putting a cover on a pot, which Maran (257:2) permits if the intention is not for Hatmana, but rather to safeguard against dust or mice.
SUMMARY
1. On Erev Shabbat, it is permitted to place towels over pots on the blech or hotplate. Ideally, one should leave one side of the pots exposed.
2. On Shabbat, it is prohibited to place a challah on the blech under the towel, with the intention of utilizing the insulation provided by the towel.
