Is the iPad Smart Cover flammable?
No. In your case of the leather cover - I can't imagine any circumstance where someone would call leather flammable. (or inflammable or combustible or any other word which means "easily set on fire")

Leather is what blacksmiths, welders and others working in hot or hazardous environments use for flexible protection when asbestos or other fireproof materials are overkill.

I haven't seen a good chemical analysis of the makeup of the polyurethane cover, but in general urethanes begin to break down chemically at the same temperature that paper burns, so even if it doesn't ignite, you might not want to expose your smart cover to burning temperatures.

Neither is going to ignite easily or need handling typical of a "flammable" substance.