Then it would be logical to deny claims if you ride on a road with 1% positive slope. It would create even larger drag, thanks to gravity and the mass of the vehicle.
Actually, an uphill road would be worse than flags. Flags are within the slipstream, they aren't always exposed to the full speed of the vehicle.
Regardless of any of that, what a burned out clutch has to do with drag? Was it slipping when fully engaged? That would be ... unwelcome.
Actually, I’m guessing the clutch cage broke. Bikes generally have wet clutches, so it’s incredibly hard to actually burn the clutch plate. Putting too much strain on the driveline could conceivably cause the cage to fail, but there’s no way the drag of just two flags would do it, especially since (as others have pointed out already), just the strain of pushing the bike up a hill would easily exceed that.